China adds 10,000 new foreign-funded enterprises

16:32, June 17, 2011      

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China registered a total of more than 10,500 new foreign-funded enterprises in the first five months of 2011, and actual investment volume was up 23 percent from the same period last year to 48 billion U.S. dollars, according to statistics released by the Ministry of Commerce on June 15.

In May, China approved the establishment of nearly 2,400 foreign-funded companies, which involved foreign investments totaling 9 billion U.S. dollars, an increase of 13 percent from a year earlier. China has remained enormously attractive to foreign investments amid the global economic downturn.

"China is a very popular foreign investment destination country," said Yao Jian, spokesperson for the Ministry of Commerce. Currently, the overall situation for the utilization of foreign investments in China is healthy.

"Go west"

Data shows there are some new notable features in China’s utilization of foreign investments in the first five months.

The volume of investments from the United States, which has always been a major source, dipped. The United States investors established only 598 new enterprises in China in the first five months, a drop of 3.7 percent from a year earlier. The actual investments made by the United States totaled 1 billion U.S. dollars, a drop of 24.12 percent from a year earlier.

Asia and the European Union increased their investments in China, becoming major sources of foreign investments in China. Asian countries and regions, including Hong Kong, Macao, Japan, Malaysia and South Korea, set up more than 8,400 enterprises in China during the first five months, an increase of 9.92 percent from a year earlier. Their total investments were up 29.28 percent to 41 billion U.S. dollars. The European Union’s 27 member countries established 700 new enterprises in China, an increase of 17.45 percent from a year earlier.

In terms of industry structure, the actual investment growth in the agriculture, forestry, animal husbandry and fishing sector was higher than in the manufacturing and service sectors. The actual investment growth rate of the agriculture, forestry, animal husbandry and fishing sector stood at 28.16 percent, while that of the manufacturing sector stood at 20.6 percent and the service sector at 27.7 percent.

In terms of regions, the actual investment growth in the central and western regions remained higher than in the eastern region, with the actual year-on-year investment growth rate standing at nearly 44 percent, more than 56 percent and almost 20 percent in the central, western and eastern regions, respectively.

Yao said that the main source of investments in China is from the 10 Asian countries, especially the traditional Greater China economic zone, followed by neighboring Japan and South Korea. In addition, the European Union and the United States are also an important source to attract foreign investments in recent years. In regard to the introduction of technology and management and the global marketing network, the European Union, the United States and Japan play very important roles.

Sensitivity of foreign investments toward increased costs

The development of foreign-funded enterprises in China recently experienced two changes. First, foreign-funded enterprises in China currently pay more attention to China’s domestic market and have gradually transformed from "export-oriented" to "domestic demand-oriented." Second, foreign-funded enterprises are highly sensitive to costs and select investment destinations and processing factory locations based on costs.

The "Business Confidence Survey 2011" recently released by the European Union Chamber of Commerce in China shows that European companies that invested in China mainly have three concerns: increasing competitive pressure in China, rising labor costs and rising raw materials costs.

"The cost factor is an important factor affecting foreign investments," said Bai Ming, deputy director of the International Market Research Department of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Bai also said that U.S.-funded enterprises always conduct research and development in the United States but do production in China, and China has been in the bottom of the "smiling curve." However, this model will not be sustainable along with the transformation of China's economic growth pattern. As the labor costs recently have become higher and the competition in labor resources has also become more intense, the United States has asked China to process more low-value-added products, which has a very limited development space.

Mei Xinyu, a researcher at the Ministry of Commerce, said that thanks to lower labor costs and significant infrastructure improvements in recent years, the central and western regions have witnessed much stronger growth in the amount of actual foreign direct investments than the eastern regions. In addition, foreign investors are paying more attention to China's agriculture sector because of the rising prices of agricultural products and high profit expectations.

Market opportunities replacing policy support

Recent data shows that the U.S. economic recovery is losing momentum, and Standard & Poor's cut Greece's credit rating by three notches to CCC, the lowest of any sovereign in the world, leaving investors worldwide worried about the worsening economic situation in the United States and Europe. By contrast, as the representative of emerging economies, China maintains strong momentum for economic growth and enjoys great attractiveness to foreign investors.

"Capital goes wherever best profit opportunities exist," Bai said. Currently, the world economy is still recovering from the global financial crisis, with emerging economies recovering faster than developed economies. According to the 12th Five-Year Plan, with huge market potential, China will make further efforts to improve its investment climate and offer more investment opportunities to foreign companies.

Experts also believe that as China’s economy develops fast, it will be natural and reasonable for the country to steadily shift its attention from mere quantity to the quality of foreign investments.

Bai agreed that more attention should be paid to the quality of foreign investments. China has offered many preferential policies to attract foreign capital, but in the future, tremendous market opportunities will be China's main attractiveness to foreign capital.

Mei suggested that China should maintain a relatively stable policy toward foreign investments, continue to create new advantages and promote economies of scale, so as to increase its popularity as a top investment destination and enhance its international political and economic status. Furthermore, a more open and fair environment should be created to attract high-quality foreign investments.

By People's Daily Online
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