Print Edition
September 2010 
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Sharing The Wealth: China’s Pledge On Inbound Investment |
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Muazzin Mehrban, August 2010 |
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As China’s economy continues to outperform that of larger rivals in the developed world, foreign investors have been keen to gain wider access to the PRC’s booming domestic market. China has become a key part of many countries’ strategy for increasing exports and employment. Just recently, US Treasury secretary Timothy Geithner assured US Congress that the administration would continue to press China for more favourable trade reforms to US exports. He stated that the country had become an even more important trading partner for Washington, with increased US exports towards the PRC acting as fuel for its own economic growth. Other developed nations, notably in Europe, also see China as key to their future economic prospects.
However, many world leaders have become concerned by what has been described as ‘indigenous innovation’ taking place in the PRC, which includes government procurement preferences, enforcement of intellectual property rights and design of product standards.
The US in particular is worried that such enforcement could disadvantage American firms, workers and technology based there. Senators argue that it is simply a principal of fairness whereby US companies operating in China should enjoy the same rights as Chinese companies – just as Chinese firms have in the US. Mr Geithner said progress had been made in response to such concerns and, recently, China agreed to set up a forum with the US Trade Representative and Commerce Secretary to address these issues. He explained that a broad set of common principles were now in place from which to move forward and resolve any differences. Notably, China committed to revising its investment catalogue and encouraging and expanding areas that are open to foreign investment, including certain sectors such as high technology, high-end manufacturing and energy saving products.
Given China’s performance throughout the recession it is no surprise that other nations are pressing for the country to become more accommodating towards foreign investment. In May China saw its foreign direct investment (FDI) rise to a 10-month high, illustrating the nation‘s resilience to the European debt crisis, according to analysts. Figures from a World Bank forecast in the second quarter show that China’s economy will expand by 9.5 percent this year, three times the pace expected from the US. Part of the growth has been driven by universal brands such as Volkswagen (VW) and PepsiCo, boosting their investment in what is now comfortably the world’s third largest economy. Major names remain keen to tap into the country’s rising levels of consumer expenditure, fuelled by the government’s stimulus package and higher wages. In addition, according to an Ernst & Young survey of 814 companies, China was ranked by 39 percent of respondents as the most attractive destination for FDI, edging Western Europe which came in at 38 percent. In fact, over the next three years, China is expected to remain the most attractive destination, followed by other emerging regions such as India and Central and Eastern Europe (CEE). Meanwhile, Western Europe will likely fall even further behind, into fifth position, with Brazil ranking fourth. A report from the American Chamber of Commerce in China revealed that nearly 80 percent of US firms in China planned to increase their investment in the country. Nearly half of them expect their investment growth to exceed 10 percent.
However, Beijing is keen to see overseas investment delivered in line with the PRC’s economic development needs. Currently, there is a need for investment in high-end manufacturing, modern services, new energy and energy efficiency, outsourcing and environmental protection. At the same time, efforts are underway to move away from polluting ‘energy gorging’ projects, while overcapacity will look to be significantly reduced. Foreign projects coming under the ‘encouraged’ category of China’s foreign investment catalogue will benefit from lower land prices, with discounts as high as 30 percent. The government has stated that such strategies are intended to assist China’s burgeoning economic growth, by promoting foreign investment in industries higher up the economic value chain and those which permit environmental sustainability.
Leading the growth
Despite not being a state priority, retail has been among the biggest areas of improvement, where sales rose more than 18 percent for the three consecutive months leading up to May, according to government data. Automobile sales in particular rose 26 percent from a year earlier to just over one million units for the month of May, revealed the China Association of Automobile Manufacturers in June. Although the rate was slower than for April and March’s like for like figures, such growth means that China is set to overtake nearby Japan as the world’s second largest economy later this year, having already succeeded the US as the world’s biggest automaker in 2009. Europe’s premier carmaker VW pledged to spend $622m to add a tenth plant in China as part of a strategy to double annual production capacity in the nation to three million vehicles over the next four years. In addition, PepsiCo, the world’s largest snack maker, said that it too would be pumping $2.5bn into China over the next three years to build new factories and boost research and development in the region. But experts warn that export growth could be subdued for the rest of the year compared to 2009 figures, while the sovereign debt crisis in Europe, although distant enough not to cause significant harm, will have some impact.
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