Social Sciences in China (Chinese Edition)

No. 7, 2025

An Analysis of China’s Industrial Chain Risks from the Perspective of Foreign Investment

(Abstract)

Ni Hongfu, Zhong Daocheng and Peng Siyi

Foreign direct investment (FDI) is a crucial component of China’s high-level opening-up strategy, and understanding the behavior of foreign-invested enterprises is essential for ensuring the security of domestic industrial and supply chains. This study develops an accounting framework for industrial chain risk that differentiates between domestic and foreign production activities. It offers a comprehensive assessment of China’s industrial chain risks and simulates the potential effects of foreign enterprise relocation. The findings reveal that since 2000, China’s industrial chain risk initially declined, then rose, and eventually declined again—primarily due to reductions in risk linked to foreign capital. For China, the concentration of risk stemming from foreign investment remains relatively high, and there is a structural imbalance in the country composition of foreign investment. Moreover, the risk is positively related with foreign enterprise relocation. To address these challenges, China must further reinforce a domestically led innovation and industrial system, while also consolidating the stability of foreign investment and fostering diversified, stable trade relationships.