Foreign Direct Investment

 During the Tenth Five Year Plan period, China’s opening-up was fully embraced by international economic cooperation and competition since its WTO entry. China also made progress in utilizing foreign investment. Foreign investment of $383 billion was actually used, far exceeding the total value during the Ninth Five Year Plan, including about $286 billion as foreign direct investment (FDI), $38 billion collected by issuing stocks overseas, about $46 billion as loans.

The basic reason that the introduction of foreign investment by China obtained great success lies in that China provides all the investors in the world with excellent environment for investment, production and operation.
The environment of Chinese macroeconomy being improved day by day and the utilization of foreign investment having obtained significant achievements during the tenth five-year plan

Foreign investment scale is enlarging with more investment modes. FDI grew by more than 34% in the Tenth Five Year over the Ninth. China has become a favorable investment destiny for foreign capital and multinationals. Other foreign investments represented by overseas stock issue also made much progress. By the end of 2005, 122 mainland enterprises had been listed on the stock market of Hong Kong and other foreign security exchanges, raising a fund of $55544 million (excluding China-affiliated corporations). A total of 34 overseas institutions were recognized as QFII.

China successfully took over the new-round international manufacturing industry. During the Tenth Five Year Plan period, China seized the opportunity of manufacturing restructuring and global shrift and attracted a great deal of FDI, preliminarily making China an important production base in the world. Capital and technology intensive industries attracted much more foreign investment; a number of large foreign investment projects were launched during the Tenth Five Year after years of preparation. Foreign invested corporations set up good examples in introducing and applying advanced technology, management and concept, pushing market and global oriented development of China’s economy and enterprises, and successfully nurturing some industries with international competitiveness in the fields of electronic and information, integrated circuits, light industry and textile, electric appliance and general machinery products. 

With the entirely implementation of China's WTO commitments, apparent progress has been made in the service industry in the opening up. By the end of 2005, a total of 71 foreign banks from 20 countries and regions have set up 238 business operative institutions in China. More than 10 Chinese-invested commercial banks including China Construction Bank, Bank of China and Industrial and Commercial Bank of China have brought in overseas strategic investments, and China Construction Bank and Bank of Communications were successfully listed overseas. A total of four joint venture securities companies and 20 joint venture fund management companies were set up upon approval. On the basis of the WTO commitments, the insurance industry has been opened to foreign-invested insurance companies in all regions and in all businesses except related statutory insurances. By the end of 2005, the number of foreign-invested insurance companies had increased to 40 companies and 93 head companies and branches. Foreign-invested enterprises have become an important part in the fields of logistics and commerce. In 2005, the foreign capital utilized in the service industry of China exceeded one fifth of the total amount of foreign investments in the year.

.Foreign loans increased steadily, which effectively supported construction of key projects of the state. During the 10th Five-Year Plan, the foreign preferential loans actually utilized throughout China totaled $20.7 billion, which supported 150 key projects, including the reinforcing projects of the main dykes of the Yangtze River and the Yellow River, trunk line highways in Sichuan and other provinces, several trunk line railways from Hubei Province to Chongqing, the coal-bed gas project in Shanxi Province, pollution treatment along the basins of the Huaihe River, the projects of agricultural comprehensive development in the central and western regions, etc. Emphasis was laid on the central and western regions, which gained more than 70 percent of preferential loans when the foreign preferential loans being arranged. The financing channels and ways of international commercial loans took a feature of diversification. During the10th Five-Year Plan, $25.8 billion of international commercial loans (except loans granted by foreign-invested enterprises) have been borrowed in China, which mainly supported some projects on energy and traffic urgently-needed in the national economic development as well as some industrial projects with short construction period, good economic returns and ability to generate foreign exchange earnings through export such as the hydro-power station of the Three Gorges, Ling'ao Nuclear Power Station in Guangdong, Tianwan Nuclear Power Station, Qinshan Nuclear Power Station, purchase of planes by airlines, helped introduce some important advanced technical equipment and key equipment which could not be manufactured by China, alleviated the unsuitable structure of foreign exchange sources from domestic financial institutions, and enhanced the domestic institutions' ability to optimally allocate funds .

Capacities of managing foreign debts have been further enhanced, and the foreign debt scale is in step with the level of the national economic development and the situation of the international balance of payment. With regard to the tendencies which foreign debts of China took on in recent years, namely, the flow increased by times, the total scale grew rapidly, and short-term foreign debts took up a large proportion, the administrative department of foreign debts successively promulgated related provisions, effectively controlled the growth of foreign debts and adjusted the structure of foreign debts in a timely manner, so as to keep the debt service ratio, liability ratio, and debt-to-GDP ratio of China's foreign debts within the safe lines that are accepted internationally.

The regulations and policies on foreign capital utilization have been improved constantly, and the management level has been advanced gradually. On the basis of the requirements for the development of socialist market economy and China's WTO commitments, related laws and regulations as well as rules and regulatory documents of all departments and localities on foreign capital utilization have been completely cleared up and amended. We have amended the Catalogue for the Guidance of Foreign Investment Industries twice, amended the Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions, and promulgated the implementation opinions on the promotion of the old industrial base in northeast China to widely open up to the outside world. According to the spirit of the investment system reform of the State Council, auxiliary reform of the management system of foreign capital utilization was conducted, the approval procedures for foreign loan projects have been regularized, the approval system for foreign-invested projects has been changed into ratification system, the examination steps have been reduced, and the work efficiency has been improved.
The hard environment for foreign investments that has been improved obviously providing foreign investors with basic guarantees

China has abundant resources, beautiful environment and amiable climate, which is suitable for foreign investments with various types and various scales. The area of Chinese land is more than 9,600,000 sq. km., which is only next to Russia and Canada. The climate is characteristic in both continental monsoon climate and complicated climate. From the south to the north, it covers equatorial zone, tropical zone, subtropical zone, warm temperate zone, temperate zone, and cold temperate zone. The regional natural conditions differ greatly and the variety is obvious.

In terms of resources, the Chinese agricultural resource is abundant. Various planting and breeding such as farming, forestry, livestock breeding and fishing are all advanced. The specifications are complete and the production system is perfect. Several dozens of mineral resources list in the first several places in the world. The natural reserves are great. China is one of several big countries in resources in the world. Thus, China has advantages in introducing resources and foreign investment. Meanwhile, the abundant natural resources also provide foreign investors of various manufacturing even service industry with excellent support.

In recent years, the construction of Chinese infrastructure has been improved greatly. The infrastructure in transportation, communication, and the supply of water, electricity and natural gas is almost complete. The ability of supply and quality of energies, raw materials and components has been improved obviously, which provides foreign investors with excellent external conditions in production and operation.
Chinese Government will further perfect the environment for investment in the future 

1.Continuously strengthening the soft environmental elements of investment

Among all the elements of investment introduced by China, the soft environmental element is most important one, especially the market-based degree and policies of foreign investments including construction of law systems, perfect of market economy, establishment and implementation of policies and encouraging measures for foreign investment.

Due to the special conditions in China, under the almost established elements of macro-economy and hard environment for investments, the element of soft environment has effect on decisions of foreign investors in scales and quality. Strengthening soft environmental elements is a systematic project, the basic purpose of which is to accelerate the construction progress of domestic marketization. The foreign investment is the result of market economy. The environment of market economy is the necessary condition for its survival and development. The Chinese government not only has already totally cleared and revised relevant laws, regulations and policy documents according to the requirements of market economy and the promises to join in WTO, but also will make the establishment of laws, regulations and policies open, fair, standardized and transparent in the future. Meanwhile, the government will combine the transformation of governmental functions, improve the management and approval of investment, increase the efficiency of services and reduce the steps in examination and approval.

2. The element quality of macro-economy should be improved and the opening degree of the market should be expanded further. First, the economic development should emphasize both intensive one and extensive one but depend on the former in order to expand market scale, increase economic developing level and display excellent increasing prospect. It can not only expand the foreign investment but also make full use of it. Second, the market opening degree should be expanded further. Under the current circumstance, expanding new fields for investments and reducing the introduction costs of foreign investments have already been the necessary demands for introducing new foreign investments. It includes newly opening or expanding open to some fields such as finance, insurance, telecommunication and circulations, and lowering the limitations on the share rights of foreign investment in some fields such as commerce, foreign trade, automobile, chemical industry, and some projects of energies, infrastructure constructions and mineral resources exploitation.

3. The hard environmental elements for investments should be improved further. The improvement of Chinese hard environmental elements for investments has already obtained important progress. The bottleneck effect of infrastructure construction in hardware on the economic development, such as transportation, communication and energies, has been eliminated almost. Therefore, in terms of hard environmental elements for investments, the key point is to accelerate the reform of marketization in elements supply, accelerate the combination of the domestic market and international market in order that the quality and price level of service supply, energy utilization and supply of raw materials and components can meet the international standards basically, and fully release the appeal of hard environmental elements to foreign investments.

After China joining in the WTO, the reform and opening up has entered a new developing stage. The Chinese opening up is omni-directional, multi-leveled and wide-range. In November of 2006, the Communist Party of China held the 17th national congress, which keeps the stability of the national political situation and continuity of every principles and policies and will guarantee the Chinese reform and opening up to go on continuously and smoothly.

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