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VI-9 Question: Some media have reported that in recent years China has been picky about foreign capital eager to enter the Chinese market. In the next few years, China will carry out substantial readjustments in terms of utilizing foreign capital. Why is that? What are the readjustments about?

A: Using foreign capital and attracting foreign direct investment (FDI) have been important aspects of the opening up of the country. For years, China has taken the lead in attracting FDI among developing countries. By the end of 2006, China had approved over 590,000 foreign-invested companies, and the paid-in FDI had reached US$685.4 billion. In 2006 alone, China approved 41,485 foreign-invested companies with paid-in FDI reaching US$69.468 billion.

In spite of the huge inflow of FDI, there remain many problems. The foreign-invested industrial structure should be optimized. Foreign investment in service trade industry is far from enough. More investment should be directed to hi-tech industry, modern service industry, modern agriculture, and energy-saving and environmental protection industries. Foreign investment is not distributed equally. Lastly, some regions blindly encourage foreign investment, putting more emphasis on scale and amount while ignoring quality.

Due to these reasons, China will readjust its strategy in utilizing foreign capital, amend and perfect the catalogue for foreign investment, further encourage transnational companies to set up regional headquarters, research and development centers and training centers in the country. China encourages foreign investment in the hi-tech industry, the advanced manufacturing industry, the energy conservation and environmental protection industry as well as modern agriculture. It encourages foreign investment to participate in restructuring traditional industries and reshuffling state-owned enterprises. At the same time, China will gradually open its service sector in an active and steady manner, encourage foreign investment in high value- added industries such as finance, logistics, information technology, technology research and development so as to increase the proportion of foreign capital in the service sector.

The fact that China readjusted its foreign investment policy didn't mean it would shun its market; it is meant to correct the unsustainable and inappropriate ways of attracting investment and to create an equal, fair, and competitive environment. The actions were not meant to restrict or drive out all foreign investment, but to create a better environment for foreign investment. China didn't change its basic principles in terms of opening up its market. Currently, nearly all countries are striving to attract foreign investment, and China doesn't want to be left behind.

At present, China's economic development is at a new stage. China will further expand domestic demand and will attach more importance to the function of opening up, and will continue to improve the quality of foreign investment.


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