Why is foreign investment still strong in China?

08:23, April 21, 2011      

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According to the statistics released by China's Ministry of Commerce, China approved 5,937 new foreign-invested companies in the first quarter, up 8.8 percent year on year, and Foreign Direct Investment (FDI) in China has increased with a 29.4 percent year-on-year rise in the first quarter to 30.34 billion U.S. dollars,

By the end of March, China had approved 716,578 foreign-invested companies and used 1.08 trillion U.S. dollars of FDI.

Seek wider space for development

"The quick increase in foreign investment introduced by China in the first quarter was within the expectation because China has a big market as well as a large population. However, its GDP per capita is lower than the half of world's average, which also means it has great potential for development," said Zhang Hanya, the president of the Investment Association of China.

He also pointed out that some of China's regulations on foreign investment in recent years did make some small foreign companies unhappy, but those measures are in line with the principles of the World Trade Organization (WTO) and promises from China. He said they do not affect the investment from large transnational corporations.

Zhang said the world is currently walking out of the shadow of the financial crisis and needs more liquidity. Therefore, China, with its stable politics situation, fewer natural disasters and better environment for investment, has automatically become the priority for foreign investors. Those foreign businessmen are going to seek much wider space for their development in China.

However, the major driver behind the increase in FDI in the first quarter of this year is due to the attractiveness of the domestic economy, said Mei Xinyu, a researcher from China's Commerce Ministry.

Analysis emphasizes that despite the downturn the global economy, foreign enterprises in China are generally doing pretty well due to the quick recovery of China's economy and the investment environment, which is constantly being enhanced. Some of enterprises became their mother companies' cash cow. China, which has great potential for development, has already become the "safe house" for international capital amid the financial crisis.

According to the "World Investment Prospects Survey 2010-2012" released by the United Nations Conference on Trade and Development (UNCTAD) last year, China tops the 14 other most attractive destinations for investment in the world and is the first choice of transnational corporations.

Commerce Minister Chen Deming said recently that China continues to blend into the global economy, complementing advantages with other countries and sharing benefits since joining into WTO. China has become an emerging market with a large scale and rapid growth, and China's strong development provides important force for Asia and even the whole world.

Upward trend in foreign investment will continue

Lately, some voices question whether China can continue to attract foreign investment since China's exchange rate keeps increasing along with labor costs.

However, scholars emphasized that China will continue attracting more foreign investment.

Regarding how China will use foreign investment in next step, Mei Xinyu believes China's share of introducing foreign investment will be larger in the world, especially those investments targeting China's domestic market.

In addition, with emerging benefits due to the stability of China's macro economy and politics, investments in China as "safe house" will increase, too.

Some scholars say the inflow of international capital eases the shortage of capital in China as it continues on the road of development and promotes the rapid growth of the export-oriented economy. At the same time, foreign direct investment upgrades the technical level and organization efficiency of China's economy and increases the production efficiency of its national economy.

From quantitative expansion to qualitative benefit

Some scholars think China's policies of introducing foreign investment for quantitative expansion must give way to policies for purchasing qualitative benefit since China has already become the second largest economy in the world.

Zhang Yansheng, the director of International Economic Research Office of NDRC, said China should bring more high grade foreign investment into through building a much open and competitive market.

"We should figure out whether absorbing foreign investment is the final goal or just a method and how can we develop ourselves through learning from others."

However, introducing foreign investment does not mean more is better. Experts point out that shifting from quantitative expansion to purchasing qualitative benefit is a new problem in China's development.

By Wang Hanlu People's Daily Online
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