Chinas Investment

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Chinas Investment Trade Environment
Development Research Center of the State Council,
P.R.C

• Yingmin Liao
  
• China-Chile International
• WorkshopSantiago, Chile
• June 9, 2004

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Main contents

• I. Overview of FDI in China
• II. Overview of Chinas Import Export
• III. Chinas Investment Trade Policies
• IV. Chinas Investment Trade Environment

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I. Overview of FDI in China
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    FDI has witnessed a rapid increase
over last 20 years since China adopted the policy
of reform and opening to the outside world in
1978 and its entry into WTO in 2001. In 2002,The
realized volume of FDI was 52.74 billion,
whereas contracted FDI amounted to 82.768
billion,which made China firstly become the
largest FDI recipient in the world.
Figure 1
China's FDI inflows
600
535.1
527.4
468.8
500
454.6
452.6
417.3
407.2
400
337.7
275.1
300
200
110.1
100
31.9
6.4
0
1983
1988
1992
1993
1994
1996
1997
1999
2000
2001
2002
2003
100 million
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  FDI in China by industry At present, more
than 400 companies of Fortune 500 have entered
China. MNCs have established more than 150 R D
or technical centers, and four fifth of
newly-invested projects have adopted the most
advanced technology of the parent companies.
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Table 1 Industries with investment by
registered foreign enterprises ( Dec. 31, 2002)
 
Registered enterprises
Total investment
Foreign registered capital
number
Industry structure()
volume( 100 million )
Industry structure () )
volume( 100 million )
Industry structure()
Total
208056
100.00
100.00
402000
100.00
981893
Farming, forestry, animal husbandry and fishery
4640
2.23
10371
1.05
5220
1.29
Mining industry
957
0.45
3658
0.37
1691
0.42
Manufacturing
146515
70.42
572761
58.33
248296
61.76
Power, gas and water
1185
0.56
53898
5.48
12025
2.99
Construction industry
4197
2.01
22937
2.33
7860
1.95
Transportation, storage ,Post and
Telecommunications Services
3540
1.71
44588
4.54
16962
4.21
Wholesale, retail , Hotel and catering service
,
12431
5.97
26294
2.67
11689
2.90
Real estate
11850
5.69
148033
15.07
51865
12.91
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   In 1990, enterprises with foreign
investment had a gross industrial output value of
44.895 billion RMB,occupying about 2.28 of the
national total industrial output value of 1970.1
billion RMB. In 2002, foreign-invested
enterprises had a gross industrial output value
of 3377.1 billion RMB,accounting for about 33.37
of total industrial value of 10119.8 billion RMB

Figure 2 Industrial output value of
enterprises with foreign
Investment vs. national industrial output value
1990-2002
150000
100000
50000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Industrial output value Of enterprises
with Foreign investment (100 million RMB)
National industrial output value (100 million RMB)
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In 1990, the total value of import and
export by foreign-funded enterprises in China
reached 20.1 billion,accounting for about 4.04
of the total value of 115.4 billion for Chinas
import and export. In 2002, the total value of
import and export by foreign-funded enterprises
in China was 330.2 billion, occupying about
53.19 of the total value of 620.8 billion for
Chinas import and export.
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Figure 3 Total value of import and export
commodities by foreign-funded enterprises vs.
total value of national import and export
commodities in China1990-2002
7000
6000
5000
4000
3000
2000
1000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Total value of Import Export commodities by
foreig-funded enterprises ( 100 million)
National import and export commodities ( 100
million)
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?.Overview of Chinas Import and Export
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In 1990, the total value of import
and export of China was 115.4 billion. Out of
that, the value of export was 62.1 billion and
the value of import was 53.4 billion with a
trade surplus of 8.7 billion. In 2003, the
total value of import and export of China was
851.2 billion. Out of that, the value of export
was 438.9 billion and the value of import was
412.8 billion with a trade surplus of 25.5
billion.
Figure
4 Overview of China International
Trade1990-2003
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Import ( 100 million)
Import Export ( 100 million)
Export (100 million)
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2. 2003???????
?2 2003???????
?2 2003???????
Figure 2 Major imported commodities in 2003
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The Commodity Composition of Import(2003)

Foodstuff,live poultry,tobacco
Non-foodstuff material
8
2
The rest
9
Mineral fuel,lubricant oil
7
Chemical products
Machinery Transportation Equipment 47
12
Finished products categorized By raw materials
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Bilateral Trade between China and Chile

• In 2003, the total value of Chinas trade with
  Chile was 3.5 billion an increase of
  37.5year-on-year. The value of export to Chile
  was 1.28 billion USD, an increase of 28.6, and
  the value of import from Chile was 2.24 billion,
  an increase of 43.2?Chinas trade deficit was
  0.96 billion.
• In 2003,China imported 500 thousand
  tons of copper from Chile, which accounted for
  near twenty percent of total import from Chile.

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?. Chinas Investment Trade Policies
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• 1. China will fulfill it Commitments to WTO and
  open its market wider
•   In line with Chinas WTO commitments, China
  reduced its average tariff rate from 11 in 2003
  to 10.4, in which the average tariff rate of
  agricultural product was lowered from
  16.8to15.6 and industry products from 10.3 to
  9.5?
• From January 1, 2004, China eliminated
  import quotas on refined petroleum products,
  natural rubber and tyres and eliminated the
  import quotas on certain tax numbers of motor
  vehicles and key parts.
• In 2004, five commodities with 123 commodity
  codes (8 number) are imposed of import quotas or
  licenses. Motor vehicles and key parts are in
  line with import quotas and licensed import
  commodities are DVD production equipment,
  monitored chemicals, easy-made poisonous
  chemicals and materials damaging the ozone layer.
  

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• Chinas Commitments to WTO (to be continued)
• In 2004, fifty kinds of commodities are
  imposed of export quota licenses which are
  maize, rice, cotton, tea, saw lumber, live cattle
  (to Hong Kong Macao), live pigs (to Hong Kong
  Macao), live chicken (to Hong Kong Macao),
  silk, coal, charcoal, crude oil, refined oil,
  rare-earth, etc.
• According to Chinas WTO
  commitments,China will eliminate import quota on
  motor vehicles from January 1, 2005 and will
  continue to lower tariff tax on motor vehicles
  till July 1, 2006 when the tariff tax is reduced
  to 25 for the complete vehicle.

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2. More fields will be open to foreign investment
and more ways will be adopted for FDI utilization

• In March 2002, the central government enacted
  the New Industrial Guidance Catalogue on Foreign
  Investment, and sectors such as
  telecommunications, construction and operation of
  urban water supply and sewage, gas and thermal
  energy supply networks that were prohibited
  previously are now open to foreign investment. Of
  a total of 371 items under the new catalogue, 75
  items fall into the restricted category - a
  substantial reduction from 112 items under the
  old catalogue, others are encouraged or
  permitted.
• ON April 12, 2003, Temporary Rules for
  Foreign Investors to Buy Enterprises inside China
  was brought into effect,which allowed foreign
  investors to buy enterprises inside China through
  MA.

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• On Nov.5, 2002,China issued the Tentative
  Rules on Administration of Investment in Domestic
  Securities by Qualified Foreign Institutional
  Investors, with the purpose to open up Chinese
  domestic securities market to QFII(Qualified
  Foreign Institutional Investors). By the end of
  Nov. 2003, Chinese authorities had approved ten
  QFII s scheme with a total investment of 1.75
  billion.
• On June 1, 2004, Measures on the
  Investment in the Commercial Field by Foreign
  Investors was brought into effect, which means
  that foreign investors can enter into commercial
  field, with lower threshold than before, such as
  registered capital, investment scale etc.

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• 3. Encourage Technical Development Innovation
  by Foreign-Funded Enterprises
• From 1998, China strengthened the work of
  encouraging technical development innovation by
  foreign-funded enterprises foreign-fund RD
  center can be exempt from tariff and VAT when
  importing self-use equipment or its related
  technique and spare partsforeign-funded entities
  that engage in know-how transfer, technological
  development, or related technical consulting and
  other services can be free from business
  taxforeign-funded entities that engage in
  know-how transfer, technological development, or
  related technical consulting and other services
  can be free from business taxif the
  technological development spending in
  foreign-funded enterprise increases more than 10
  over the previous year, 50 of the implemented
  capital can be used to offset the taxable income
  at the approval of tax authority domestically
  made equipment purchased by the enterprise
  without exceeding total investment can get the
  refund for VAT if the same import equipment is
  free from duty.

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4.Encourage foreign investors to invest in
central and western China

• The newly issued Industrial Guidance
  Catalogue on Foreign Investment in Middle and
  Western China indicated that the foreign-funded
  entities can be exempt from tariff and VAT when
  importing self-use expertise, equipment and spare
  parts, that foreign funded enterprises
  established in middle and western China can enjoy
  extended income tax exempt duration.

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• IV. Chinas Investment and Trade
  Environment

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1.Advantageous investment environment
High growth rate of economy GDP of China grew
at an average rate 9.3 per year from 1979 to
2003 Stable political and social climate
Low labor cost average money wage was 1696
in 2003 Value of industry product created
by foreign funded enterprises grew at the rate
43.33 per year from 1990 to 2002
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2. Huge potential consuming market China is
an immense production and consume country. In
2003, total retail sale of consumer goods was
553 billion, total sales of enterprise above
designated size in wholesale and retail trade is
1152 billion. Demand of resource commodities
grows dramatically
Table 3 Supply demand of major products in
2003 (ten thousand tons)
consumption production net
import
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3. Infrastructure being improved

• For recent years, the country strengthened
  to build out infrastructure to improve condition
  for business, like new highways, power plants and
  phone networks. By the end of 2003, electricity
  production was 1910.8 billion kwh, total business
  length of railway transportation was 730,000 kms,
  highway was 1.81million kms,volume of freight
  handled in major coastal ports was 2.01 billion
  tons.
• According to a survey by the World Bank, it
  takes 8 days for a Chinese enterprise to claim
  its commodity through customs clearance from sea
  ports which is about the same time length with
  South Korea and Thailand. Compared with that, it
  takes India 11days and Pakistan 18days.

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Thanks !