# Driving Transformation: The Shifting Landscape of FDI in China’s Auto Industry

- Link: https://www.thailand-business-news.com/business/216428-driving-transformation-the-shifting-landscape-of-fdi-in-chinas-auto-industry
- Published: 2025-05-08T07:40:00+07:00
- Author: Zhang Fang

**China’s automotive industry highlights structural transformations driven by FDI
reallocation, as outlined in the ASEAN+3 Macroeconomic Research Office’s report 
on managing these transitions.**

## Structural Shifts in the Auto Industry

The automotive industry serves as a prime example of structural changes fueled by
strategic foreign direct investment (FDI) reallocation in China. This dynamic sector
illustrates the evolving landscape of global investments and economic strategy.

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## Strategic Reallocation of FDI

Foreign direct investment in China’s auto industry reflects a broader trend of reallocating
resources to enhance efficiency and innovation. These investments are key to transforming
the industry, enabling advancements and technological integration.

China’s foreign direct investment (FDI) inflows have significantly declined since
2022, raising concerns about potential capital outflows. However, a recent [study by AMRO](https://amro-asia.org/is-declining-fdi-into-china-a-cause-for-concern)
indicates that this decline in actual FDI utilization is mainly concentrated in 
traditional sectors, while high-tech industries have experienced significant growth
in recent years.

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The automotive industry exemplifies these structural transitions driven by the strategic
reallocation of FDI within China. As one of the country’s pillar industries, the
auto sector has contributed approximately 10 percent to China’s overall economic
output in recent years.

**Evolution of China’s auto industry**

The development of China’s auto industry has undergone four major stages (Figure
1): startup phase (1953-1978), growth phase post-opening up (1979-2000), rapid development
phase after World Trade Organization accession (2001-2010), and transformation and
upgrading phase driven by new energy vehicles (NEV) (2011-present).

In 2009, China overtook the United States to become the world’s largest automotive
market. Starting in 2011, the Chinese government capitalized on emerging opportunities,
ramping up policy support, increasing investments, and actively promoting the development
of NEVs. By 2024, NEV production accounted for over 40 percent of China’s automotive
market (Figure 2).

This rapid growth not only generated a significant number of direct jobs but also
catalyzed the development of related industries through an extensive upstream and
downstream supply chain.

**FDI lays groundwork for modern development **

Over the past few decades, foreign investment has played a pivotal role in fostering
the growth of China’s auto industry. In 1984, Volkswagen established the first joint
venture in Shanghai to manufacture passenger cars in China, marking a major milestone
in the country’s automotive history and international cooperation.

Traditionally, joint ventures aimed to reduce production costs and enhance market
competitiveness by manufacturing foreign car models in China for exports. However,
over time, especially after 2004, most of the joint ventures in China are aimed 
at capturing the rapidly growing Chinese market. Over the following decade, FDI 
in the auto industry accounted for an average of about 25 percent of total investment
in the sector. By 2016, foreign and joint venture brands dominated the market—more
than 30 joint venture car brands accounted for approximately half of China’s total
sales volume.

These partnerships enabled Chinese automakers to establish a comprehensive framework
encompassing product development, manufacturing technologies, value chain management,
dealership networks, brand maintenance, and employee management, paving the way 
for a modern, globally competitive auto industry.

**More interdependent partnership with foreign investors**

In recent years, the relationship between foreign investors and Chinese automakers
has evolved from straight-forward collaboration to more integrated and interdependent
partnerships that foster mutual growth and innovation. While sales of joint venture
brands have declined with the rise of NEVs and competitive domestic brands, many
foreign automakers are increasingly leveraging China’s advantages in NEV supply 
chains and innovation.

For example, Volkswagen’s investment of RMB 10 billion in an R&D center in Hefei,
where a comprehensive NEV supply chain is well established, and an additional RMB
5 billion in local NEV manufacturer Xiaopeng, highlights this trend. These investments
aim to jointly develop pure NEV models, demonstrating a long-term commitment to 
the Chinese market despite an evolving market landscape.

Beyond serving the growing domestic market, foreign automakers are also utilizing
their production capacity in China to supply global markets. BMW, for instance, 
exports vehicles produced in China to other markets in Asia, integrating Chinese
manufacturing into global supply chains.

## Insights from AMRO ASIA

For a deeper understanding, explore the article “Navigating Change: The Evolution
of FDI in China’s Auto Industry” on the AMRO ASIA website. This piece highlights
significant changes and strategic movements shaping the future of China’s automotive
sector.

Source: [Navigating Change: The Evolution of FDI in China’s Auto Industry ](https://amro-asia.org/navigating-change-the-evolution-of-fdi-in-chinas-auto-industry)