Experts Call for Stronger Guidance to Foreign Investment

Foreign capital continues to flow into China, but its distribution remains unequal, with the majority of investment going to China’s eastern areas while a mere trickle makes its way to central and western areas. Consequently, the economy of eastern China is characterized by a higher number of foreign-funded enterprises and higher numbers of workers employed by foreign-funded enterprises. The export percentage of high-tech products is also astronomically higher in the east than in the rest of China. Exacerbating these regional inequalities is the fact that, after joining the WTO, much of China focused on international trade, resulting in weak linkages between Chinese companies and a divided national economy. This article from the official People’s Daily suggests providing incentives to direct foreign investment into less developed regions of the country, but doing so within the framework of the WTO. – YaleGlobal

Experts Call for Stronger Guidance to Foreign Investment

Tuesday, August 3, 2004

Although the US$53.5 billion foreign capital China absorbed last year has played a significant role in promoting China's economic growth, experts called for attention to the unbalance of industrial structure, technological sources and the economic growth capability in various parts of China, resulting from the uneven distribution of foreign investment in China.

Experts note that the country's eastern area absorbed most of the foreign investment in China, while the central and western regions with a relatively low level of development and lagging in the reform and opening up drive also attract less foreign capital. The uneven distribution of foreign investment has widened the development gap between the eastern and western areas in four aspects:

-- In regional industrial development. In 2002, the proportion of foreign-funded enterprises in the whole industry stood at 34.88 percent, 9.68 percent and 7.76 percent respectively in east, central and west China, the percentage for the eastern area is over four times that of the central and western areas.

-- In regional export. During the 1996-2001 period, the export of foreign-financed enterprises in the eastern region represented over 96 percent and took an upward trend, while that of the central and western areas only accounted for less than 2.5 percent and took a downturn.

-- In regional human resources accumulation. Researches show that the increase of US$100 million in foreign investment makes it possible to take in 13,000 employees. In 2001, the number of employees with foreign-funded enterprises in the country's eastern area was nearly 6.6 million, while those businesses in central and western areas employed only 612,000 and 373,000 people respectively.

-- In regional technological development. The foreign capital entering the eastern area is not only of large amount, but also of high quality, while that entering the western area is just the opposite in terms of amount and quality, thus exerting important impacts on the development of China's regional industrial technology. In 2002, the export percentage of high-tech products in the country's eastern, central and western areas was 97.93 percent, 1.02 percent and 1.05 percent respectively.

After joining the WTO, with continued reduction of resistance to foreign trade, all the provinces and autonomous regions were inclined to attach importance to the development of foreign trade, as a result, the integration of internal market lagged behind that of the external market. The economic ties and trade between Chinese regions shrank relatively, consequently weakening the country's overall competitiveness. "The serious unbalanced integration of domestic and international markets has exerted dividing effects on the country's market and economy, and generated demand-losing effects on the country's economic growth." Remarked Prof. Yang Xianming with the Development Institute of Yunnan University.

Experts suggest that guidance should be persistently given to foreign investment orientation, and restrictions or preferential terms should be made on foreign investment in different industries and regions. In key areas that bear on the country's security, public interests, the national economy and the people's livelihood, necessary restrictions or prohibitions should still be imposed on foreign investment.

Experts maintain that relaxation of access areas and access conditions should also fit in with the structural adjustment of the country's industry and the balance of regional development. The legislation on the admission of foreign investment should be identical with concrete promises, and necessary reservations should be made, and the concrete procedure for the country's opening-up should be designed within the permissible scope of the WTO. The country should vigorously encourage foreign investment to flow to high-technology content areas and the central and western regions, and combine the utilization of foreign investment with the reform of state-owned enterprises, regional arrangement, technology upgrading, talents introduction and the elevation of the management level.

Copyright by People's Daily Online

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