Immediately after the founding of the People's Republic, China began to utilize overseas capital in the hope to accelerate the rehabilitation and development of its national economy. Over the past 50 years, along with the development and change of both domestic and international economic and political situation, great changes have taken place in the condition of China's utilization of overseas capital.
In the 1950s, China introduced foreign capital from the former Soviet Union through the means of government loans, and the capital thus introduced was used in its key construction projects covered in the First Five-Year Plan. In the 1960s, China introduced foreign capital in the form of supplier's credit, and the capital imported was mainly used to import the complete set of vinyl equipment as well as some equipment for the Sichuan Luzhou Fertilizer Plant, the Taiyuan Iron and Steel Plant, the Lanzhou Chemical Plant. From 1972 to 1977, also by way of supplier's credit, China imported a large amount of complete sets of equipment and technology from Japan and Western European countries. In 1978, for the first time the Chinese Government obtained a buyer's credit from the Bank of Export Countries. After 1979, along with continuous expansion of the reform and opening-up drive, great progress has been witnessed in the dimension, mode and channel of foreign capital China imported. The foreign capital came from the international financial institutions, foreign governments, foreign commercial banks, foreign enterprises and idle funds in the hands of individuals.
Since 1992, a swift development has been seen in China's efforts to use overseas capital. In April 1996, China annulled its preferential tax policy regarding the import of equipment and raw materials in order to gradually grant national treatment to foreign businessmen and attract more foreigners, who lay more emphasis on the market rather than the preferential policy, to come and invest in China, so as to improve the structure of investment. The focus in the use of overseas capital also gradually shifted to agriculture and hi-tech industries.
China utilizes overseas capitals in two ways. One is loans of various kinds, including long- and medium-term medium- and low-interest loans, interest-free loans with the nature of aid, commercial loans and various kind of development funds from international financial institutions or foreign governments. The capital thus raised is mainly used to increase import, import technology and particularly in the construction of projects in infrastructure industries such as energy and transportation. The other way is called direct investment, which means to import capital through the means of establishing joint ventures, co-operative enterprises, setting solely foreign-owned enterprises as well as engaging in compensation trade. The capital pooled in this way is mostly used for the expansion and technological upgrading of medium-sized and small enterprises, and setting up enterprises. Besides, China also accepts aids gratis from other countries.
China follows the following principles in the utilization of overseas capital: 1. The total amount of foreign debts should be appreciate in relation to the national strength, that is to say, it should be in a proper scale and maintains a reasonable structure. 2. The overseas capital must be used in production and construction. 3. Stress should be laid on returns. 4. Due importance should be attached to direct foreign investment. 5. Constantly improve the investment environment.
From 1979 to 1997, China altogether signed 310,000 contracts for utilizing overseas capital, and the contracted volume reached US$651.4 billion, of which US$348.65 billion has been actually used. The number of countries or areas from which China absorbed overseas capital amounted to 108, and a multi-source investment structure has already come into shape. Loans from foreign governments and financial institutions and capital pooled by means of investment in securities have reached to a considerable scale. In total, foreign loans added up to US$115.95 billion. From 1993 to 1996, for four years in a run China led all the developing countries in the utilization of overseas capital. It was second only to the United States throughout the world.
