1. FDI Policies in China Lin Guijun University of International Business and Economics

2. Why FDI for China

3. With the inception of economic reform in 1979, China began to attract FDI. Before the reform the inflow was zero.

4.  To overcome the shortage of domestic funds for economic reconstruction; (1) To introduce foreign managerial and technological know-how; (2) In view of the success of the Asian Tigers, the policy was to help enhance China’s export capacity. (3) To fill in the gap in productive capacity

5. What measures to promote FDI inflows

6. 1. Establishing Special Economic Zones In 1979, the Chinese government decided to establish special economics zones. The special economic zones are export oriented. The four SEZs include: Shenzhen. Zhuhai (both near Hong Kong), Shantou (with close connections with Chinese diaspora), Xiamen (near Taiwan).

7. Also in 1979, incentives (mainly favorable taxes) were allowed to develop processing exports.

8. 2. Open Coastal Cities In 1984 the Chinese government opened 14 coastal cities. At the end of the year, Changjiang delta, Zhujiang delta, Liaodong Penisular and Shandong Penisular were open to foreign investment.

9. In 1988, Hainan, part of Guangdong was designated as special economic zone. In 1990, Pudong development zone was established.

10. 3. Open Inland Cities In 1993, 28 interior cities and 14 inland border cities were open to FDI inflow.

11. 4 Reform for Socialist Market Economies In the Spring of 1992, Deng Xiaoping reassured the goal of the reform to establish socialist market economy In 1993 China became the second largest FDI recipient country. It is now the largest recipient.

13. 5. Enacting Laws In 1979, “The Joint Venture law of the People’s Republic of China” was adopted. 1986, the Law on Foreign Investment was enacted. In 1988, the “Law on Foreign Co- production” was enacted.

14. 6 government ’ s participation Governments at various level played high importance on FDI inflow. Local governments compete with each other.

15. Financially Does China Need FDI?

16. How much FDI in China Total inflow of FDI into China is around 800 billion dollars, creating about 30 million jobs.

17. Inflow and Outflow of Direct Investment

18. Savings and Investment Aggregate 959800010203040506 储蓄 41%39%37%38%40%44%47%50%52% 投资 41%36%35%36%38%41%43% 经常 项目 0%3%2%1%2%3%4%7%9%

19. Saving and Investment Sectoral 959800010203040506 政府部门 储蓄 1%0% 1% 2%1%2% 投资 4%5% 生产部门 储蓄 33%29%25%23% 26%36%38% 投资 27%23%22%24% 27%29% 30% 个人部门 储蓄 8%9%12%14%12%19% 11% 投资 5% 6% 6

20. Saving and Investment Production 9598000102030405 06 国有企业 储蓄 18%17%11%10%8% 9%12% 投资 16%14%12% 11%10% 集体企业 储蓄 8%5%3%2%1% 2%1% 投资 6%5% 6%7% 公司制企业 储蓄 7% 11%12% 13%16%23%24% 投资 1%2%3%5%6%8%10% 外资 3%2% 3%4%

22. Share of foreign ventures in trade

23. Share of domestic firms in trade

24. Processing exports and total exports

25. Investment policies with WTO

26. Conforming investment guidelines and their implementation to WTO rules. Complying fully with the WTO’s Agreement on Trade-Related Investment Measures upon accession. Eliminating policies requiring trade and foreign exchange balancing, local content, and export performance.

27. Ensuring that investment approval is not conditioned on whether competing domestic suppliers of such products exist or performance requirements of any kind, including the transfer of technology and the conducting of research and development in China.

28. Amending industrial policies for the automotive sector to ensure gradual liberalization on types or models of vehicles permitted for production over 2 years and investment levels approvable by provincial governments over 4 years, and removing the 50 percent foreign equity share limit on automotive engine plants upon accession.

29. Further liberalization of some sectors already opened before, such as Automobile industry: moving local holding majority share to 50/50. Opening new sectors for FDI, especially in service sector, such as Banking, insurance, distribution and so on.

30. FDI Laws revision

31. In July 1979, the government enacted “The Joint Venture law of the People’s Republic of China” adopted in 1979. It was revised in 1990 and 2001.

32. Joint venture law revision Before revisionAfter revision No. 2, Article 2: activities must obey China’s law, decree and relevant regulations Activities must obey China’s laws and legal regulations Hiring and laying-off governed by the agreement and contract of joint venture partners Hiring, laying-off, salary, welfare and protection and security must be stipulated in a contract. (new article added) must establish trade union to protect workers

33. Joint venture law revision Before revisionAfter revision No. 2 Article 9: various insurance covered by China’s insurance companies Covered by insurance companies within China Production plan must inform government agency deleted Domestic suppliers have priority for required raw materials fuel and parts, or using own FX to acquire in international market According to the market principle, can be acquired from either domestic or foreign suppliers

34. Joint venture law revision Before revisionAfter revision In No. 15, Article 14: disputes among investors settled through domestic arbitration or other arbitration bodies agreed. (add new in addition) if arbitration failed, can file law suit to the people’s court. The right to revise this law is with the People’s congress Deleted.

35. Foreign Investment Law revision 1986, the Law on Foreign Investment was enacted. It was revised in 2000.

36. Foreign Investment Law revision Before revisionAfter revision No. 1, Article 3: the establishment of FIE be conducive to China’s economic development, using advanced technology and equipment, or all or most products to export. establishment of FIE be conducive to China’s economic development, encouraging export-oriented FIEs or type with advanced technology No. 1, Article 11: FIE production plan must inform government agency Deleted

37. Foreign Investment Law revision Before revisionAfter revision Article 15: for purchase of raw materials, fuel etc, under euqal conditions, domestic suppliers have priority. According to the market principle, can be acquired from either domestic or foreign suppliers N0. 3, Article 18: FIE be self- balancing in FX. agency approved for sales in doemstic market be responsible for solving FIE’s FX problem Deleted.

38. Before revisionAfter revision Article 15: for purchase of raw materials, fuel etc, under euqal conditions, domestic suppliers have priority. According to the market principle, can be acquired from either domestic or foreign suppliers N0. 3, Article 18: FIE be self- balancing in FX. agency approved for sales in doemstic market be responsible for solving FIE’s FX problem Deleted.

39. Foreign Co-production Law revision The “Law on Foreign Co-production” was enacted was adopted in 1988. It was revised in 2000.

40. Foreign Co-production revision Before revisionAfter revision Article 19: for purchase of raw materials, fuel etc, can either be purchased from domestic or foreign markets According to market principles, can either be purchased from doemstic or foreign martkets Article 20: firm responsible for foreign exchange balancing. In case not possible, to be resolved according to relevant regulations Deleted

41. FDI under Financial Crisis

42. Inflow not much affected The global financial crisis did not have much negative impacts on inward direct investment. The inflow volume rose by 29.7 percent in 2008, and in 2009, there was a mere drop by 2.6 percent. 2007, $83.5 billion; 2008, $108.3 billion; 2009 $90 billion

43. Export-oriented FDI more volatile While China was able to maintain a high growth rate, saw a modest decline in export- oriented FDI in 2009. In the second half of the year, inward FDI to many Asian economies recovered quite rapidly, almost offsetting the steep fall in the first half year.

44. Low share of M&A M&A direct investment tends to be much more volatile than greenfield investment. China has the lowest ratio of M&A to total direct investment, 6 percent.

47. Service outsourcing to China reached more than US$60 billion in 2007. China has been among one of 30 top destinations for offshore IT operations, and it is believed to be an emerging leader in service outsourcing.

48. A measurement of offshore service outsourcing is based on Extended Balance of Payments Services Classification (EBOPS) data. It provides an upper limit for estimate of offshore services to China. The export of transportation, communications, financial and insurance services (FIS), computer and information services (CIS), and other business services (OBS) from 2000 to 2008.

49. The largest type of service export is OBS, amounted to US$46.3 billion in 2008, followed by transportation service. All types of services export increased substantially during the period. Among them, the export of CIS increased by 17.6 times, while OBS export increased by 6 times, which indicates a quick expansion of IT outsource to China.

51. Exports of Parts and Accessories (US Million Dollars) 0 50,000 100,000 150,000 200,000 250,000 200020012002200320042005200620072008 Parts and accessories of capital goods Parts and accessories of transport equipment Total Source: United Nations Commodity Trade Statistics Database

52. What do two TRILLION dollars FX reserves look like?

53. All this talk about "stimulus packages" and "bailouts"... A billion dollars... A hundred billion dollars... Eight hundred billion dollars... One TRILLION dollars... What does that look like?

54. We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them.

55. 100 dollars

56. A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

57. 10,000 dollars

58. The next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

59. 1 million dollars

60. While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

61. 100 million dollars

62. And $1 BILLION dollars... Now we're really getting somewhere...

63. 1 BILLION dollars

64. Next ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? It's a million million. It's a thousand billion. It's a one followed by 12 zeros.

65. One trillion dollars!

66. Notice those pallets are double stacked. So the next time you hear someone toss around the phrase "trillion dollars"... that's what they're talking about.

67. Thank you ！