China is currently drawing up plans to adjust its strategies for foreign investment use. According to indications from
China's Ministry of Commerce, the Chinese government is to effect a partial change in policies on foreign investment use in order to better meet the new requirements of current and future national economic development.
As usual, the United Nations Conference on Trade and Development (UNCTAD) issued its annual World Investment Report in mid-October. As the largest developing country in the world,
China has attracted more and more international capital every year, with the amount of foreign direct investment flowing into
China in 2005 reaching USD 72.4 billion. As a result,
China is ranked third in the world as a destination for foreign direct investment, following the
UK and USA, while it is still ranked first among the world's developing countries.
While most foreign
investments contributed greatly to
China's economic development, a certain portion had the contrary effect. Some foreign
investments flowed into
China with only speculative purposes in view; some of these were pollution projects, others were projects which were not really functional and result-oriented. Due to the practical deficiencies in the state management system, such investment flowed into
China with considerable ease and did harm to the country's healthy economic development. The Chinese government is aware of these problems and has initiated relevant investigations and research into policy issues and measures to counteract the deleterious effects of these negative foreign
investments.
Apart from investigations into illegal foreign
investments, the following are some of the issues that will influence
investments from overseas in the future:
Quality, not quantity
The quantity of foreign investment is a key factor in the comprehensive achievements of
China's local governments. However, this situation will perhaps change soon with the emphasis switching to quality. A more strict evaluating system for foreign
investments is expected to focus strongly on resource
consumption, pollution, technological standards, management standards, and new employment opportunities.
Industrial directions
To suit the current domestic economic development, the state tends to direct foreign
investments to the areas of agriculture, high-tech industries, infrastructure, environmental protection, service industries, etc. Furthermore, to accelerate economic development in western and rural regions, the state is encouraging greater foreign investment flow to such areas and is also promoting cooperation with local enterprises.
In addition, as market supervisor, the
China government will take measures to create more open and fair conditions for competition between domestic and foreign enterprises. The most important measure is to change the current unfair business income tax system. Due to the need to attract foreign investment, overseas businesses have enjoyed many favorable policies and considerable preferential treatment in
China. Low income tax is just one of the areas in question. Due to unfavorable treatment, local enterprises are at a serious disadvantage when faced with foreign competition, and such a situation does not help
China's hopes for fostering sustained economic development. The time is ripe for a change!