The Scope & Possibilities of FDI in China

According to the Ministry of Commerce (MOFCOM), foreign-invested enterprises account for over half of China’s exports and imports; they provide for 30% of Chinese industrial output, and generate 22% of industrial profits while employing only 10% of labor – because of their high productivity.

China has slowly been liberalizing its capital markets to foreign investors. It has allowed its currency, the yuan, to be traded outside of the country and has pushed for it to be used for trade. Beijing has also allowed Chinese companies to borrow overseas and more easily move cash in and out of the country.

According to the Foreign Investment Guidance, foreign investment in China is classified into four categories:

  • Encouraged Investment
  • Permitted Investment
  • Restricted Investment
  • Prohibited Investment

In 2017, Hong Kong is the largest investor in China. Singapore, Taiwan, South Korea, Japan, the United States, the Netherlands, Germany, the United Kingdom and Denmark are other major investors. Investments were mainly oriented towards business services, manufacturing, trade, new technologies, real estate and financial intermediation.

Why China is an attractive destination for the foreign investors-

China’s attractiveness as a destination for investment capital rests on its labor & physical resource availability, infrastructure, development of the business value chain, productivity and workforce skills. Apart from this political and economic stability can facilitate an influx of FDI. Stability represents predictability and the opportunity for enterprises to gain better foresight into the future.

Chinese government is looking to increase foreign access to its market by following two strategies:

First- Via investment changes

Second- By cutting tariffs for various goods

The officials are anticipating a resurgence of high-value investment from the foreign countries over the coming few years after pledging to scrap joint venture requirements and overseas shareholders limits for industries including aircraft manufacturing, automotive production and financial services. President Xi Jinping’s signature foreign policy plan Belt and Road Initiative and trade links between China and Eurasia is expected to bolster more investment especially from the Europe and Australia. It is a new model of win-win cooperation and would make economic globalization, open, inclusive, balanced and beneficial to all.

Under a new version of the government’s “negative list”, foreign investment restrictions in areas including energy, resources, infrastructure, transportation, commerce & logistics and professional services will be loosened or scrapped.

The stance of the Chinese government regarding direct foreign investment is, they will continue to reform investment sector and implement decision on opening up market based on their own preference and requirements. It is a time-taking process and they don’t want to any hasty move.

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