Summary of Key Points
The escalation of tensions in the Middle East has driven up global energy prices, increased shipping risks, and raised costs along the supply chain. However, the resilience of China's supply chain has led foreign companies to "vote with their feet"—they have not withdrawn their investments but have instead increased their presence in the country. Foreign firms such as LANXESS and SKF are deepening their operations in China by expanding offices and relocating research and development centers. The structure of foreign investment in China continues to improve, with high-tech industries becoming a major focus. Policy measures are also being strengthened to support further investment, demonstrating foreign investors' long-term confidence in the Chinese market.
I. Why Can China's Supply Chain Remain Stable Amidst Middle East Turmoil?
The conflicts in the Middle East have caused international oil prices to rise and disruptions to supply chains in Asia, but Chinese factories have been largely unaffected. For example, LANXESS's factory in Ningbo, Germany, is operating normally. CEO Chang Mutian stated, "China has a well-developed energy strategy with sufficient oil and gas reserves; we have not seen any disruptions in the supply chain or shortages of energy." In contrast to other Asian countries, many companies issued notices of force majeure, indicating their inability to deliver on time. China, with its ample reserves and intact supply chains, has acted as a stabilizer. LANXESS has also gained more customer orders due to the stable supply from both China and Europe, as customers prefer suppliers who can maintain a consistent supply.
II. Why Are Foreign Investors Increasing Their Investments in China Now?
Despite the increased uncertainty in the global economy caused by the Middle East situation, foreign investors are boosting their investments in China:
- LANXESS: Launched a new office in Shanghai, another move following the establishment of its Asia-Pacific headquarters in 2018, highlighting the strategic importance of the Chinese market.
- SKF: Moved the research and development center for its largest product line (deep groove ball bearings) to China and established a global technology and testing center, with plans to expand its R&D team. SKF believes that China offers a strong industrial foundation, a large market, and a favorable business environment, all of which facilitate rapid testing and optimization of new technologies for global sales.
III. A Shift in Foreign Investment Preferences: High-Tech Industries Are Becoming the Priority
In the past, foreign investment may have focused more on manufacturing, but now it is shifting towards high-tech sectors. Data from the Ministry of Commerce shows that:
- In the first four months of 2026, high-tech industries attracted $116.33 billion in actual foreign investment, a year-on-year increase of 20.3%, accounting for 40.4% of the total foreign investment (an increase of 10 percentage points compared to the previous year).
- Fields such as research and development services, computer manufacturing, and electronic communications have seen the fastest growth in investment. Investments from Switzerland, France, and the United States have also increased significantly.
Experts from the Shanghai Academy of Social Sciences note that this represents a historic high, indicating that the structure of foreign investment in China is improving, aligning with the country's industrial upgrading. In the future, more foreign investment will be directed towards high-tech sectors.
IV. How Are Companies Responding to Pressure?
Companies are adopting various strategies to cope with rising energy and logistics costs:
- LANXESS: Raised product prices to pass on the increased costs to customers while strictly controlling expenses. Although performance declined in the first quarter, it began to recover in March, with expectations for a better second quarter.
- Jinfat Technology: Received more orders than expected due to the market's demand for suppliers that can provide stable supply; their strong supply chain position helped them outperform competitors.
- Kureha: Increased inventory to ensure uninterrupted supply chains, a trend expected to continue in the second quarter.
V. Policy and Market Support Provide a Solid Foundation for Foreign Investment
The Chinese government is also supporting foreign investment: In July 2025, the National Development and Reform Commission issued 12 measures to encourage further investment by foreign companies. Coupled with China's own advantages—a vast market, a complete supply chain, and an abundant talent pool—the country already attracts over $3.6 trillion in foreign investment, making it the second-largest recipient of foreign capital globally.
Although the actual amount of foreign investment is declining, many firms are choosing to make additional investments. In the first four months of 2026, more than 3,000 foreign companies made additional investments, and in 2025, the number increased by over 10% compared to the previous year. This indicates that foreign investors are not averse to coming to China but are more inclined to establish long-term presence there.
Conclusion
The Middle East situation serves as a test for China's supply chain resilience and market potential. The strong performance of Chinese companies, along with the supportive policies and market conditions, have convinced foreign investors to place their trust in the country. In the future, China will continue to be seen as a safe haven and growth opportunity for foreign capital.