Tesla’s US$5 billion Gigafactory helps Shanghai record increase in foreign direct investment for 2018

Daniel Ren
Tesla’s US$5 billion Gigafactory helps Shanghai record increase in foreign direct investment for 2018

Shanghai, mainland China’s commercial and financial capital, shrugged off the US-China trade war to record an annual increase in foreign direct investment in 2018 – driven in no small part by Tesla’s plan to build its first plant outside the United States in the city’s free-trade zone.

Capital committed by investors that will be received in the future, or contracted foreign funds, rose by 16.8 per cent to US$46.9 billion, according to the Shanghai Municipal Statistics Bureau. The foreign funds actually received last year hit US$17.3 billion, up 1.7 per cent from 2017.

A key driver of the rebound in FDI was foreign manufacturers’ mounting interest in setting up production and research facilities in Shanghai, Tang Huihao, deputy head of the statistics bureau, said on Tuesday.

And while he did not mention Tesla’s plan to build its Gigafactory 3 at Lingang, the project is expected to cost US$5 billion, the single largest foreign investment in Shanghai’s manufacturing sector. The Palo Alto, California-based electric carmaker signed an agreement with Shanghai for the factory in July 2018, and broke ground for the manufacturing facility this month.

“Tesla’s investment is not only a numbers game that drove up Shanghai’s FDI figures, but an encouraging sign the city remains attractive to global manufacturers,” said Gao Shen, an independent analyst specialising in the manufacturing sector.

“But it will still be difficult to maintain the upwards momentum in the coming years, due to the uncertainties in the US-China economic relationship.”

The increase in FDI last year follows declines in 2017, when Shanghai fell victim to growing protectionism, and rising costs pushed global companies to look elsewhere.

Tesla to produce cheaper versions of Model 3 electric cars in Shanghai

That year, foreign funds that Shanghai actually received stood at US$17 billion, down 8 per cent from the year earlier. The foreign funds Shanghai secured for future investment dropped by 21 per cent to US$40.2 billion.

Shanghai has also been shifting its focus from manufacturing to financial services over the past decade. The sector received a wake up call when the city’s industrial output dropped by 7 per cent year on year in the first quarter of 2016.

The shrinking contribution of manufacturing to the local economy prompted the local government to take action to stem the slide. The city now hopes to attract more than 60 key industrial projects with an annual output of more than 1 billion yuan (US$146.9 million) each between 2016 and 2020.

Tesla sets up Shanghai beach head with wholly owned plant

The Tesla plant is expected to produce about 3,000 Model 3 vehicles a week in an initial phase, before ramping up output to around 9,600 a week – 500,000 a year — when it becomes fully operational.

The local statistics bureau also reported that Shanghai’s economy expanded by 6.6 per cent in 2018, at the same rate as the growth in China’s gross domestic product.

This article Tesla’s US$5 billion Gigafactory helps Shanghai record increase in foreign direct investment for 2018 first appeared on South China Morning Post

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