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Doing a Good Job in Achieving Equilibrium of Balance of Payments
Highlights: In opening wider to the outside world, the question of the recovery and repayment of foreign capital must not be neglected.
Recently, it was learned that after the spread of the news about the upcoming Fourth China Investment and Trade Symposium, it immediately evoked strong repercussions from some international economic organizations, foreign chambers of commerce, associations and enterprises, some 2,000 international standard exhibition booths were practically all ordered, a fact demonstrating a good momentum in China's utilization of foreign capital.
An official with the Ministry of Foreign Trade and Economic Cooperation disclosed that between Jan-May, China newly approved 7,724 foreign-invested enterprises and absorbed contracted foreign capital to the tune of well over US$18.25 billion, up by 22.37 percent and 25.63 percent respectively over last year's same period.
Such a huge number of foreign-funded enterprises and such a huge amount of imported funds have made China become a developing country using the most foreign investment in the world in only 20 short years, additionally, the influx of large quantities of foreign commodities, advanced technology and equipment and scientific management expertise has gradually changed the quality of people's life and been updating traditional ideas and concepts, which has become an indispensable, important part of China's economic development.
Moreover, this capital-introduction method focused on the attraction of medium- and long-term capital has enabled China to avoid the impact of the flow of international short-term capital and the infection of foreign financial crises while making active use of foreign funds. For this reason, maintaining a certain scale of imported capital remains the focus of the work of China's future utilization of foreign capital, furthermore, we should further expand the opening of the field and region for foreign investment.
At the Third Session of the Ninth National People's Congress, Premier Zhu Rongji explicitly indicated, "We should gradually push forward opening to the outside world in the fields of commerce, foreign trade, finance, insurance, securities, telecommunications, tourism and intermediary service. We should relax restriction on foreign investment in technology transfer, the proportion of internal sales and the shareholding ratio in some trades. And we should encourage foreign business people to invest in agriculture, infrastructure facilities, environmental protection industries and high and new technological industries."
While encouraging large-scale import of foreign capital, China has all along paid attention to improving the quality of the utilization of foreign capital and clearly set forth the guidance principle of making active, rational and effective use of foreign funds.
In recent years, some progress has been achieved by various localities in the aspects of improving the industrial structure relating to the orientation of foreign investment and increasing the average scale of foreign capital, however, due to the lack of sufficient understanding of the influence exerted by direct foreign investment on the long-term dynamic equilibrium of the balance of payments, the fact that some localities blindly pursued the expanded quantity of foreign capital and had little care about the question regarding the repayment and recovery of foreign investment has, to some extent, restrained the further improvement in the quality of China's utilization of foreign capital.
Presently, the total amount of direct foreign investment China absorbed has exceeded US$300 billion, the scale is expected to grow rapidly after its projected entry into the WTO. With the passage of time, these foreign investments will, sooner or later, gradually enter the period of recovery, and it is bound to form a fairly large demand for foreign exchange and thus bring about certain pressure on the balance of international payments. Because this kind of risk accumulates in a gradual process and occurs at a specified future date, people cannot feel it at present, which is therefore often neglected. However, the frequent international financial crises have reminded us that if the risk hidden in the balance of payments is not promptly eliminated and defused, major imbalance, once occurs, will not only affect the economic and financial stability of a country, but will jeopardize the fundamental interests of foreign investors.
At present, the process of negotiation on China's accession to the WTO has obviously accelerated, it can be said that the day is not far off when China will join the big WTO family, and the work of China's use of foreign capital will accordingly step into the new stage featuring the process of accelerated economic globalization, the all-directional expansion of opening to the outside world. Therefore, to adapt to the change of this situation, promote a long-term dynamic stability of the balance of payments and safeguard national economic security and the interests of foreign investors, we must grasp the key, or the "nose of the ox", to improving the quality of the use of foreign capital. In the opinion of experts, in the work of future attraction of funds, the following questions merit our attention.
Firstly, it is necessary to establish the concept of the major cycle featuring the entry and exit of foreign capital, correct the idea that "the more foreign capital is used, the better", and "paying attention only to borrowing and not to returning", give overall consideration to the combination of the quantity and quality of the use of foreign capital, short-term and medium- and long-term, the use of foreign exchange and the earning of foreign exchange, the utilization of foreign capital and the use of domestic funds and take an early precaution against and defuse hidden risk of balance of international payments.
Secondly, it is necessary to work out a guidance policy on scientific and rational foreign-invested industries, strengthen the coordination of foreign economic policies, combine the attraction of foreign capital and the readjustment of industrial structure, and the expansion of exports and the elevation of the level of technological development, and promote the enhancement of the State's overall competitiveness. This is the fundamental way out for guaranteeing the quality of the use of foreign capital, as well as a long-term policy for preserving the equilibrium of the balance of international payments.
Thirdly, it is essential to take precautions beforehand, take timely measures to prevent and obviate the risk of dislocation of the balance of international payments possibly caused by improper introduction of capital, it is also necessary to strengthen the monitoring and early warning of the flow of foreign capital and step up statistics and analysis of the balance of international payments. And
Finally, there should be distinctive difference between the utilization of foreign capital and the use of domestic funds, this means that the return on foreign investment is achieved in the form of foreign exchange. For this reason, we should foster and develop domestic financial markets through speeding up reform of the domestic investing and financing structure, to create a mechanism for the fair competition between domestic and foreign funds, to fully tap the potential of the domestic high depositing rate and truly make rational and effective use of the "domestic and international markets and resources", thereby avoiding excessive dependence on external resources, this will be an important way out for preventing and defusing risk of the balance of international payments.
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