Overseas investors are making big bucks in the Chinese market, but questions remain about how this will impact on the economy in the long run.
According to the Ministry of Commerce, 28,748 foreign-funded enterprises were approved between January and August with a combined contractual investment of US$95.8 billion, up 39.7 percent on the previous year.
Amongst those who worry about this rapid growth is Shen Jiru, a research fellow with the Chinese Academy of Social Sciences. In an article in September he wrote that further dependence on overseas investment could dampen the country's capability of withstanding world economic fluctuations and political instability. It could also hinder China's ability to make independent economic decisions.
Shen also warned that other countries could view China as a threat for importing great amounts of raw materials such as oil, iron, copper and aluminum ore, with some claiming that it has caused spikes in the price of energy and raw materials.
Many foreign and domestic economists concur with Shen. They note that, if the situation continues, China would be hard-pressed to tackle economic problems in the event of a global downturn, despite having overcome 1997's Asian financial crisis.
But there are those who disagree: Yan Xianpu, a National Bureau of Statistics (NBS) official, holds that there has been an improvement in the quality of foreign investment. In the past investors regarded China simply as a production base with ample labor and natural resources, whereas now many have started eyeing it as a potential consumer market.
Reflecting this, overseas investment in labor-intensive sectors has fallen while technology-based and service industries have grown. Some multinationals have even set up research and development centers in China with the result that competition has shifted more from tangible to intangible assets.
Beijing, Tianjin, Shanghai and Guangzhou are attracting the most foreign investment, mainly into real estate, commerce, information, software, leasing, legal services and corporation management.
Hu Zuliu, vice board chairman of Goldman Sachs Asia, said that the problem facing China is not excessive foreign investment but attracting even more capital from overseas. He believes China should also make efforts to lure indirect capital from abroad, such as investment in domestic stocks to help streamline the country's financial structure, alleviate the burden of debt on state-owned enterprises and create a favorable environment for further financial reform.
Over the past two years China passed more than 30 laws and regulations helping to open its service sector to the outside world, lowering the thresholds to enter its market.
Of course, this is not just a one-way street: the Chinese mainland is increasingly a source of foreign direct investment (FDI) in other countries.
Its outbound FDI reached US$2.85 billion last year, up 5.5 percent. This brought the mainland's total overseas investment to US$33.2 billion by the end of 2003.
With its economic power driving it to target overseas markets for investment opportunities, the Chinese mainland is expected to displace Japan as the world's fifth largest outward foreign direct investor this year, according to the United Nations Conference on Trade and Development's 2004 forecast.
By the end of last year 3,439 mainland enterprises had established 7,470 companies in 139 countries (including Hong Kong and Macao). Forty-one percent of them invested in Hong Kong, the US, Japan and Germany, while the most popular industries were those with low investment thresholds: manufacturing, wholesale and retail, commercial services and construction.
(Beijing Review, China Daily October 22, 2004)
