TaiShang
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Now the task is quality growth, quality development.
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FDI should be guided toward higher-end industries
2016-1-14 0:03:38
China has achieved a lot in attracting foreign direct investment (FDI) since the launch of its reform and opening-up policy 30 years ago. An abundant amount of FDI has prompted the Chinese economy to grow in leaps and bounds, but there are three major misconceptions about the current FDI situation in China.
The first is that China has attracted enough FDI. This view is only relevant to labor-intensive sectors. It contends that China's labor-intensive sectors have lost their competitiveness in the global market, and now need to get rid of excess capacity. But the fact is that the amount of FDI attracted to China is still far from sufficient. While FDI has perhaps been excessive in low-end industries, it remains far from sufficient in China's high-end industries.
The second misconception is that under the current economic downturn, FDI is not only not helping with recovery, but could also lead to more competition in the domestic market. And the third one is that some local governments and bureaus think stabilizing economic growth and adjusting industry composition are more vital tasks, thus putting FDI at a lower priority.
With the advent of the second FDI boom in China, it is necessary to clarify these outdated viewpoints. This second wave of FDI is different in four key ways from the one that first arrived at China after the reform and opening-up policy. The first relates to areas where FDI is attracted. It is used to be labor-intensive sectors that drew most foreign capital, and processing was the major task involved.
But this new round of FDI should flow into every area of the economy, especially service industries such as finance, healthcare, culture, education, retirement, telecommunications, and logistics.
The second is the entities that attract FDI. It used to be up to local governments whose money can be invested. But this time, the decision is up to enterprises.
The third is the geographical scope within which FDI is attracted. We need to connect this round of FDI with the "Belt and Road" initiative, the Yangtze River Economic Belt strategy and the free trade area roadmap.
The fourth is the institutional environment to which FDI is attracted. It used to be that local governments enticed foreign capital with favorable policies. But in this round of FDI, the need for foreign capital should prompt local governments to simplify application procedures and lower thresholds, turning favorable policies into favorable environments. This is to ensure a more reasonable and transparent legal environment that values intellectual property rights, a crucial condition for high-end FDI.
Thirty years ago, our policy to induce FDI had certain constraints. This time, we should create a unified system with policies that match each other. After the foreign capital comes in, the major role of the government should be to provide support services, such as offering protection for intellectual property rights and social welfare construction.
A group of economists used to be concerned that China may be caught in the same trap that used to face Latin America when attracting FDI. The consequence of over-dependence on outside economies can be that the domestic economy falls into stagnation after it loses its comparative advantages in terms of labor and resources. But the focus of FDI in labor-intensive sectors in the past was mainly to solve unemployment in the domestic market and participate in global resource distribution in a basic fashion. It is a different game this time. We ought to shift from the massive, unselective mode of FDI inducement to a more selective mode. We ought to weed out those projects that involve high pollution and high energy consumption, and focus more on those with a green theme.
In the first 11 months of 2015, the amount of actual FDI into China saw a 7.9 percent increase year-on-year, according to the Ministry of Commerce. In the whole of 2015, the FDI reached an estimated $126 billion, a new high. The amount of FDI absorbed by emerging industries last year accounted for 56 percent of the total amount, with IT, healthcare and services industries among the leading recipients. During the selection process, foreign capital that focuses on sectors within the real economy should be welcomed. Better use of FDI can accelerate the transition from being a subdued manufacturing arm of Western countries to a more advanced economy based on services and that offers stronger intellectual property rights protection.
The author is vice chairman of the China Center for International Economic Exchanges and a former vice commerce minister.
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FDI should be guided toward higher-end industries
2016-1-14 0:03:38
China has achieved a lot in attracting foreign direct investment (FDI) since the launch of its reform and opening-up policy 30 years ago. An abundant amount of FDI has prompted the Chinese economy to grow in leaps and bounds, but there are three major misconceptions about the current FDI situation in China.
The first is that China has attracted enough FDI. This view is only relevant to labor-intensive sectors. It contends that China's labor-intensive sectors have lost their competitiveness in the global market, and now need to get rid of excess capacity. But the fact is that the amount of FDI attracted to China is still far from sufficient. While FDI has perhaps been excessive in low-end industries, it remains far from sufficient in China's high-end industries.
The second misconception is that under the current economic downturn, FDI is not only not helping with recovery, but could also lead to more competition in the domestic market. And the third one is that some local governments and bureaus think stabilizing economic growth and adjusting industry composition are more vital tasks, thus putting FDI at a lower priority.
With the advent of the second FDI boom in China, it is necessary to clarify these outdated viewpoints. This second wave of FDI is different in four key ways from the one that first arrived at China after the reform and opening-up policy. The first relates to areas where FDI is attracted. It is used to be labor-intensive sectors that drew most foreign capital, and processing was the major task involved.
But this new round of FDI should flow into every area of the economy, especially service industries such as finance, healthcare, culture, education, retirement, telecommunications, and logistics.
The second is the entities that attract FDI. It used to be up to local governments whose money can be invested. But this time, the decision is up to enterprises.
The third is the geographical scope within which FDI is attracted. We need to connect this round of FDI with the "Belt and Road" initiative, the Yangtze River Economic Belt strategy and the free trade area roadmap.
The fourth is the institutional environment to which FDI is attracted. It used to be that local governments enticed foreign capital with favorable policies. But in this round of FDI, the need for foreign capital should prompt local governments to simplify application procedures and lower thresholds, turning favorable policies into favorable environments. This is to ensure a more reasonable and transparent legal environment that values intellectual property rights, a crucial condition for high-end FDI.
Thirty years ago, our policy to induce FDI had certain constraints. This time, we should create a unified system with policies that match each other. After the foreign capital comes in, the major role of the government should be to provide support services, such as offering protection for intellectual property rights and social welfare construction.
A group of economists used to be concerned that China may be caught in the same trap that used to face Latin America when attracting FDI. The consequence of over-dependence on outside economies can be that the domestic economy falls into stagnation after it loses its comparative advantages in terms of labor and resources. But the focus of FDI in labor-intensive sectors in the past was mainly to solve unemployment in the domestic market and participate in global resource distribution in a basic fashion. It is a different game this time. We ought to shift from the massive, unselective mode of FDI inducement to a more selective mode. We ought to weed out those projects that involve high pollution and high energy consumption, and focus more on those with a green theme.
In the first 11 months of 2015, the amount of actual FDI into China saw a 7.9 percent increase year-on-year, according to the Ministry of Commerce. In the whole of 2015, the FDI reached an estimated $126 billion, a new high. The amount of FDI absorbed by emerging industries last year accounted for 56 percent of the total amount, with IT, healthcare and services industries among the leading recipients. During the selection process, foreign capital that focuses on sectors within the real economy should be welcomed. Better use of FDI can accelerate the transition from being a subdued manufacturing arm of Western countries to a more advanced economy based on services and that offers stronger intellectual property rights protection.
The author is vice chairman of the China Center for International Economic Exchanges and a former vice commerce minister.
Oh wait that's the fastest growth for a major economy in 2015.
