How Made in China 2025 and the U.S. CHIPS Act Are Reshaping Foreign Direct Investment in China and the United States
In the modern global economy, industrial policy and geopolitics are no longer abstract concepts — they directly influence where companies invest billions of dollars. Two policy frameworks in particular stand out in shaping foreign direct investment (FDI) flows and strategic corporate behavior: China’s “Made in China 2025” initiative and the United States’ CHIPS and Science Act. Their goals — technological leadership, secure supply chains, and economic sovereignty — have deep ripple effects on how, where, and why foreign firms deploy capital. This article explores how these policies influence FDI in China and the United States — both positively and negatively — in the context of global economic competition.
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| Made in China 2025 |
What Is Made in China 2025?
Made in China 2025 (MIC2025) is a five-year strategic industrial roadmap launched by the Chinese government in 2015. Its overarching aim is to transform China from a low-cost manufacturing base into a global leader in advanced industries such as robotics, semiconductors, aerospace, electric vehicles, and biotechnology. The initiative promotes higher domestic content, increased research & development (R&D), and greater self-sufficiency, particularly in technology-intensive sectors. State support includes subsidies, tax breaks, and government guidance funds that strengthen targeted industries. (Wikipedia)
While the policy official branding has faded somewhat since 2018, its core objectives — industrial upgrading and technological independence — remain central to China’s broader strategy. (RHG)
What Is the U.S. CHIPS and Science Act?
Passed in 2022, the CHIPS and Science Act represents a major U.S. industrial policy push to rejuvenate domestic semiconductor manufacturing. It allocates tens of billions in federal subsidies to build and expand chip fabrication facilities, boost R&D, and strengthen America’s position in supply chains that were revealed to be fragile during the global chip shortage. (PwC)
A key provision of the CHIPS Act is that companies receiving funding are prohibited from using that federal support to expand advanced semiconductor manufacturing in China or countries deemed to pose national security threats. This effectively ties financial incentives in the United States to on-shore investment and limits certain overseas activities. (PwC)
How Made in China 2025 Impacts FDI into China
1. Attraction and Redirection of FDI into Strategic Sectors
China’s ambition to develop high-tech industries has made the country a magnet for foreign capital in some areas, particularly where investors see growth opportunities. For example, China continues to attract foreign companies, especially in high-technology and services sectors, even amid global FDI declines. Between 2021 and mid-2025, China received over US$700 billion in actual utilized FDI, exceeding its targeted goals early. (Antara News)
Foreign firms — from GE Healthcare to Honeywell — have committed to long-term engagement in China’s innovation ecosystem, leveraging local demand and state support through targeted exhibitions and supply chain integration. (Antara News)
2. Localization Pressures and Technology Transfer Risks
At the same time, the industrial policy encourages foreign companies to localize production and R&D to qualify for incentives, potentially leading to technology transfer and joint ventures with domestic firms. This strategy helps China reduce dependency on foreign technology and achieve its industrial goals. Analysts note that China has used tools such as joint-venture requirements, government procurement preferences, and state funding to promote localized high-tech production. (Wikipedia)
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| U.S. CHIPS Act |
However, this dynamic also raises concerns among international investors about regulatory barriers, intellectual property (IP) risks, and market distortions when investing in strategic sectors. Critics argue that these factors can discourage investment where firms see asymmetrical treatment or competitive disadvantages. (Congress.gov)
3. Sector Concentration and Investment Patterns
Although manufacturing remains pivotal, much of the global FDI into China has shifted toward high-tech services, e-commerce, and biotechnology — all areas that align with broader policy goals. This suggests that MIC2025 — while controversial — does channel foreign investment toward sectors the government prioritizes, creating both opportunities and new risks for investors. (Antara News)
How the CHIPS Act Impacts FDI in the United States
1. Incentivizing Foreign Investment in U.S. Chip Manufacturing
One of the most visible effects of the CHIPS Act has been a wave of foreign investment into U.S. semiconductor facilities. Taiwan Semiconductor Manufacturing Company (TSMC), for example, is building a major fabrication complex in Arizona with over US$165 billion committed, marking one of the largest foreign direct investments in U.S. history. (Wikipedia)
Similarly, follow-on investments from global partners and equipment suppliers demonstrate that America’s industrial policy can attract foreign capital when paired with government subsidies and secure market access.
2. Restrictions on Overseas Operations
Nevertheless, the Act’s restrictions on the use of federal support for chip manufacturing in China mean that global semiconductor companies must reconsider their investment footprints. Firms looking to receive CHIPS funding face a trade-off: access generous U.S. incentives or pursue expansion in China’s market. This constraint may deter certain FDI flows that would otherwise go to China — and conversely, may funnel that capital into the U.S. economy.
For multinational companies with dual-market strategies, this has spurred strategic realignments of investment planning and global supply chain design. (PwC)
3. Global Investments and Strategic Partnerships
Beyond direct chip fabrication, the CHIPS Act stimulates broader investment relationships. Recent trade agreements — such as the U.S.–Taiwan arrangement involving nearly US$250 billion in Taiwanese chip industry investments into the U.S. — show that government policy can shape not just FDI flows, but also cross-border industrial cooperation. (Financial Times)
Comparative Impacts: China vs. United States FDI Dynamics
| Factor | Made in China 2025 Impact | CHIPS Act Impact (U.S.) |
|---|---|---|
| FDI Attraction | Encourages high-tech investment with incentives | Attracts semiconductor and advanced manufacturing investment |
| Market Access | Large domestic market appeals to foreign firms | Stable, secure investment climate but restricted by conditions |
| Regulatory Transparency | Complex regulatory and localization requirements | Clear incentives but limitations on overseas operations |
| FDI Direction | Drives capital into China’s targeted sectors | Redirects capital into U.S. manufacturing |
| Global Tech Competition | Enhances China’s technology base | Strengthens U.S. supply chain and reduces reliance |
Conclusion: The Broader FDI Implications
Both Made in China 2025 and the CHIPS Act reflect a broader shift toward industrial strategies that actively shape investment flows rather than just reacting to markets. They illustrate how governments can influence where foreign capital goes:
China’s industrial policy has drawn FDI into high-technology and services sectors, while also creating regulatory and competitive conditions that can both entice and deter investors. (Antara News)
The U.S. CHIPS Act has accelerated investment in domestic semiconductor capabilities and encouraged foreign firms to choose the United States as a manufacturing hub, sometimes at the expense of investment in China. (Wikipedia)
For multinational firms, these policies require a nuanced approach: balancing access to China’s large market against strategic priorities and national security considerations, while evaluating the incentives and restrictions presented by U.S. industrial subsidies. The evolving geopolitics of technology and investment suggests that future FDI patterns will continue to be shaped by both economic fundamentals and state policy design.
Suggested Readings for More Insight
2025 World Investment Report — United Nations Conference on Trade and Development (FDI trends) (UN Trade and Development (UNCTAD))
Analysis of U.S.–China semiconductor policy dynamics (scholarly articles on industrial policy) (ScienceDirect)