China received $74.7 billion in foreign direct investment in the non-financial sectors last year, ahead of all developing countries for the 15th successive year.

The Ministry of Commerce said the figure reflects a year-on-year increase of 13.59%.

Total foreign direct investment (FDI) — including capital flows to the financial sectors such as banking, insurance and securities — was $82.7 billion in 2007, up 13.8 % from a year earlier.

Wang Zhile, director of the Multinational Enterprise Research Center affiliated to the Ministry of Commerce, said, ‘The growth is higher than my expectations. It shows China’s role as a crucial link for multinationals’ global manufacturing, purchasing and research.’

This year may well be a bit different.

Income tax rates for domestic and foreign companies were unified at 25% from the beginning of 2008. Prior to this, domestic companies paid 33% income tax while foreign companies, which benefited from tax waivers and incentives, paid an average of 15%.

The effect will be considerably muted by the fact that foreign companies registered before the new rates took effect will pay tax at the preferential rate for another five years.

It is true that foreign investors are also paying more for labor and material costs, such as oil, plastics and steel, and face tighter policies on polluting and resource-intensive industries. On the other hand, China has, by a considerable margin, a more attractive manufacturing climate — not using that in the weather sense — than any country in the west and this is likely to last for many more years. It is expected that China will continue to be a magnet for foreign development and investment as Beijing’s policies to woo foreign investors and open up continue.

Wang Zhile said, ‘The Chinese leadership assured foreign investors at the 17th Party congress late last year that China will stick to its reform and opening-up policies. It is taken as a good opportunity by many foreign investors.’
Source: China Daily

The illustration is of a woman praying at Longhua Temple on the second day of the Chinese Year of the Rat. Traditionally The Year of the Rat marks a period of conquest – which is possibly what business leaders have in mind

William Hess, Beijing-based analyst for Global Insight, says: ‘The government has taken a liking to the concept of national champions, and wants to see globally competitive Chinese firms emerge in the sectors that it associates with national strength. This certainly includes the automotive sector, pharmaceuticals, and natural resources.

‘I expect to see more acquisitions by financial firms, and efforts by the government to position its homegrown technology-related firms as global players — especially in networking equipment with companies like Huawei, and in mobile phones.’

Lenovo’s finance chief Wong Wai-ming said that the computer giant will be pursuing acquisitions this year. ‘We have cash and virtually no borrowing. We also have the track record to raise the necessary debt equity. It there is the right investment opportunity, we are capable of doing it and we will do it.’

So far, there have been two types of Chinese international expansion running in parallel. A strategic expansion, and a knowledge expansion. The first expansion involves government-backed moves to secure supplies of resources like iron ore, oil, and coal, and to invest Beijing’s vast sovereign wealth fund.

The second involves smaller Chinese companies seeking out Western assets — often distressed ones — to acquire expertise and technology.

At last month’s Detroit Motor Show, the world’s biggest, there were five Chinese carmakers displaying their models. The car-makers do not match Western-style quality control. But then neither did the Japanese three decades ago.
Source: Daily Telegraph

New and wide-ranging guidelines which will affect foreign investment become effective on December 1. In the guidelines, issued by the National Development and Reform Commission and the Ministry of Commerce, the central government clarifies which industries are no-go areas for foreign capital and which are encouraged.

China’s emerging golf courses, as seen in our illustration, gaming services and ammunitions manufacturing, for example, are banned.

Authorities will restrict foreign capital flowing into the development of large-scale land lots and the construction and operation of high-end hotels, villas, office towers and exhibition malls.
Authorities will also restrict foreign capital being funneled into housing agents, brokerages and the second-tier real-estate market.

Overseas capital has been blamed by some for soaring housing prices on China’s mainland in recent years.

The National Statistics Bureau states that in the first nine months of this year, developers put RMB2.54 trillion (US$341 billion) into housing projects in China. Of the figure, RMB42.3 billion was from foreign investors, a rise of 60% year on year.

In the first nine months, total foreign direct investment in China expanded 10.9% from a year earlier to US$47.2 billion.

Authorities will also cap the ratio of foreign funds at 50% for a life-insurance company, a third for a securities company and 49% for a funds-management business specializing in stocks.

China will prohibit foreign capital in prospecting and mining its rare and non-renewable mineral resources. It will also embargo foreign-invested projects that are polluters and high users of energy and resources.

In contrast, investment in energy-efficient and ecology-friendly areas will be encouraged.
Source: China Daily

An official with the Ministry of Commerce (MOC) said the Chinese government will annually revise the list of restrained products to establish a transparent regulatory system to address its trade imbalance.

In 1999 it made a move to put labor-intensive, high polluting and high energy-consuming industries under some sort of restraint. It would be fair to say that move was something less than totally successful.

Now the MOC and Customs have issued a policy to curb the development of labor-intensive industries and this will cover 1,853 products in the plastics, furniture and textiles and other labor-intensive industries.

The move targets high polluting and high-energy-consuming industries which are mainly in eastern regions. Companies engaged in the sectors will be required to lodge guarantee deposits in the Bank of China, while registering process trade contracts with the Customs.

Traders with reasonable Customs records must deposit equivalent to half the sum of customs duties and value-added tax, while those with records of law violations must deposit 100%. The deposits plus interest will be refunded after they prove to Customs that they have fulfilled the contracts by exporting qualified finished products before contracted deadlines.

If the firms fail to meet contract requirements, they could lose their deposits and interest.

Wang Qinhua, director of the MOC’s Department of Electromechanical Products and Science and Technology Industry, said the moves would pressure manufacturing companies to add more value to their products and shift industries from eastern to central and western areas where the costs of production and labor are lower.

The theory is this would encourage large enterprises that maintained healthy growth to expand their business An official with the State Information Center has predicted that the nation’s trade surplus will soar 55% year-on-year to $275 billion this year despite the appreciating yuan and the scrapping and reduction of export rebates.

Whether the proposed restrictions will have any effect on this whatsoever is open to debate.
Source: China View