Searching for FDI Stability
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E-mail Beijing Review, June 6, 2012
Breakthroughs come slowly in expanding the sectors accepting foreign investment. In 2010 China decided to expand the sectors for foreign investment, but it is not yet clear which sectors are included. Particularly, there are obstructions in introducing foreign investment to some monopoly industries. Problems of national treatment in some sectors, especially hi-tech industries and research and development of new products, frustrate enthusiasm of foreign investors.
Necessary growth
At present the global economy is in a key stage of all-out transformation, readjustment and reform. To reduce the influence of transformation of the global economic structure on the Chinese economy, we should make full play of the role of foreign investment in upgrading industrial structure and transforming the economic growth pattern.
To maintain steady growth of FDI is a must for China to implement the policy of reform and opening up. Since the mid and late 1980s, China has adopted various measures to stimulate FDI. Foreign investment has made significant contributions to China's economic development. Foreign-invested enterprises contributed 35 percent of China's industrial output value and more than 20 percent of the country's tax revenue, and created 30 million job opportunities. This is not only an achievement of China's reform and opening up, but also an important pivot for advancing reform and opening up. Hence, to maintain steady growth of FDI helps to consolidate the achievements of reform and opening up. While expanding the scale of FDI, China must attach importance to introducing foreign investment to service sector and strategic emerging industries.
Maintaining the steady growth of FDI is necessary to ensure China's economic development. Since China introduced reform and opening up, the capital and technologies brought by foreign investors have greatly pushed forward its industrialization process and made it the "workshop of the world." At present, the industrialization level in China's western region is still far behind that in the eastern region. Therefore China still needs foreign investment to push forward the industrialization process and improve the productivity in the region. It is necessary for the country to continue introduction of FDI so as to further enhance its manufacturing capability and give it a competitive advantage in staying the "workshop of the world." In the history of world economic development, Britain, the United States, Japan and Germany have all experienced the process of being a workshop of the world or a manufacturing center before forming their respective strong industries and influences.
Steady FDI growth is closely related to steady foreign trade growth. Foreign investment has driven China's foreign trade development. In the near future, ensuring economic growth and restructuring will be a significant task for China's foreign trade. However, when the global economy weakens and demand from the international market shrinks, if foreign investment continues declining, it will be hard for China to achieve the goal of maintaining steady growth of foreign trade, and will decrease job opportunities.
Four measures
Today, the per-capita FDI attracted by China is only $50, much lower than the world average of $110 and $534 in some developed countries. Therefore China still needs to maintain the steady growth of FDI. In the coming decade, China will not change the strategy of actively and effectively utilizing foreign investment. At present, China needs to adopt some measures to keep steady FDI growth.
First, a sound environment that can facilitate the development of foreign investment must be created. China should improve relevant laws and regulations and further strengthen its protection of intellectual property rights. By introducing a competition mechanism, China should further regulate market behavior and promote the reform of monopoly industries. In meantime, the Chinese Government should provide full information to foreign investors and create a favorable environment to encourage investment.
Second, efforts should be made to guide the flow of foreign investment. Due to the uneven development between the eastern region and the central and western regions, China needs to adopt different policies in promoting foreign investment. To the eastern region, foreign investment should be encouraged to service industries, which calls for expanded opening of such sectors as finance, securities and insurance. To the central and western regions, foreign investment is still welcomed to the manufacturing sector, and market access to middle and high-end manufacturing industries should be properly relaxed. The central and western regions are also encouraged to establish bases to accommodate industrial transfer from the eastern region.
Third, the soft environment for investment should be further improved. At present, there are still disputes on whether foreign investment in certain sectors should be encouraged. Hence, consensus should be reached to ensure the steady growth of FDI. Further, China should highly stress improving the soft environment for investment, such as bettering services facilitating investors, promoting government function transformation and improving investment facilities, in order to create a sound and fair competition environment for foreign investors.
Fourth, formulation of new policies to attract foreign investment should be accelerated. The new policies include those to encourage investment in emerging industries, energysaving and environment protection industries, modern service industries, modern agriculture and other sectors that conform to transformation of the country's economic growth pattern. Efforts should be made to accelerate research on the opening of strategic emerging industries to foreign investment and promote international cooperation in these industries. China should also further open key industries and the machinery manufacturing industry to foreign investors that participate in mergers and acquisitions. Problems related to national treatment should be solved so that foreign investors can enjoy the same favorable policies as domestic companies in technology innovation and in research and development.
As all developing countries are strengthening efforts in attracting foreign investment, China faces fierce international competition in this regard. We must adopt decisive measures to promote introduction of foreign investment and combine the use of foreign investment with the transformation of our economic growth pattern and improvement of industrial competitiveness.
