Utilizing Foreign Capital
China utilizes foreign capital through various channels and forms, which fall into three major categories: 1) foreign loans, including loans from foreign governments, international financial organizations and foreign commercial banks, export credits, and issuance of bonds overseas; 2) direct foreign investment, including Chinese-foreign equity joint ventures, Chinese-foreign cooperative joint ventures, wholly foreign-owned enterprises and Chinese-foreign cooperative development projects; 3) other foreign investments, including international leasing, compensation trade, processing and assembly and issuing stocks overseas.
FDI absorption constitutes an important component of China’s basic policy of reform and opening up. With the gradual extension of the reform and opening up over the past two decades and more, China has been constantly improving its FDI utilization in terms of scale and quality. Foreign-invested enterprises, which grew from nothing, have been contributing to the growth of China’s foreign trade. From 1979 to 2004, foreign capital utilized by China in real terms totaled US$743.6 billion, including US$560.4 billion of direct investments by foreign businesspeople. In 2004, foreign investment maintained its momentum of rapid increase, and foreign capital utilized in real terms for the year totaled US$64.1 billion, of which direct foreign investment amounted to US$60.6 billion.
Since the 1980s, China has devoted great human, material and financial resources to construct infrastructure facilities to help create a favorable environment for foreign investors to invest in China. The Central Government has promulgated more than 500 foreign-related economic laws and regulations to provide legal and other guarantees for foreign investors in China. At the end of 1997, China revised and promulgated the Foreign Investment Industrial Guidance Catalog to encourage and support foreign businesspeople to invest in the comprehensive development of agriculture, energy, communications, important raw and processed materials, new and high technology, the comprehensive utilization of resources, and environmental protection. In accordance with the rules of the WTO and China’s undertakings, China has basically completed the rationalization and revision of foreign-related economic laws and regulations. A foreign-investment law system has been formed, its mainstay being the Law on Chinese-Foreign Equity Joint Ventures, the Law on Chinese-Foreign Cooperative Joint Ventures, the Law on Foreign Investment Enterprises and the relevant rules for the implementation of these laws. By the end of 2004, foreign businesspeople from more than 170 countries and regions had invested in China, with a total of 509,000 foreign-invested enterprises. Of the world’s top 500 transnational companies, over 400 have invested here. China has been hailed by investors and the financial world as among the countries with the best investment environment.
More and more foreign firms are establishing their offices in Shanghai, the powerhouse of China’s economy. Last year, 1,360 enterprises established offices in Shanghai, with a contractual investment of US$ 2.72 billion. In the first eight months of this year, Japan, the United States and other developed countries increased their investment in Shanghai. Japan registered the greatest increase with a contractual investment of US$1.23 billion, a 1.88-fold increase.
Last year, President and CEO of the Bank for Foreign Trade of Russia and President of the Industrial and Commercial Bank of China signed an agreement on comprehensive cooperation between the two banks. The Hong Kong and Shanghai Banking Corp. moved its China headquarters from Hong Kong to Shanghai. Major Japanese banks have all enjoyed sound performances in Shanghai, indicating that the city has a fine environment for financial investment.
The latest analysis of the Shanghai Academy of Social Sciences shows that the introduction of foreign capital has produced a tremendous influence on Shanghai’s development and the livelihood of its citizens. It predicts that Shanghai will witness an upsurge in direct investment from the world’s major economic powers from 2002. The rapid development over the past few years has made many believe that Shanghai is a sound port for international capital.
Statistics of the People’s Bank of China Shanghai Branch showed that, by the end of 2001, the number of overseas financial institutions in Shanghai had reached 65, of which 54 were foreign banks. The total assets, savings deposits and loan balance of foreign banks in Shanghai account for more than half of the total of foreign banks in China. So far, eight of the world’s top 50 banks have set up branches in Shanghai.
Though still mostly concentrated in the coastal areas like Shanghai, foreign-invested enterprises are now gradually spreading into cities in China’s interior, especially in western China. A series of preferential policies concerning foreign investment in western China have been established by the Chinese government since 1999 to encourage foreign investment in the central and western part of China. Since China’s entry into the WTO, the Chinese government has implemented vigorous measures to attract more foreign investment to the western part of China, to encourage foreign investment in the country’s key projects such as electricity and gas transmission from the west to the east, water diversion from the south to the north and the Qinghai-Tibet Railway so as to accelerate infrastructure construction of the western regions. Arbitrary fees and fines, unauthorized inspections and compulsory donations are firmly prohibited. Regional protection and industrial monopoly are being broken down so as to create a uniform and open market environment for fair competition of foreign-funded enterprises.