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China needs to attract more high-quality foreign direct investment (FDI) to become more competitive, officials and industry experts said on Tuesday.
Hu Jingyan, director of the Foreign Investment Department of the Ministry of Foreign Trade and Economic Co-operation, said on Tuesday: "FDI will continue to play a leading role in bringing new technologies to many fields, such as manufacturing and telecommunications."
The official was speaking at the forum "Attracting High-Quality FDI" at the ongoing Sixth China International Fair for Investment and Trade.
"However, the new challenge is that of attracting higher-quality FDI," the director added.
FDI projects in China still tend to be short-term, low-technology and labour-intensive.
Ministry figures indicate that China had attracted US$424.77 billion in actual foreign investment by July this year.
Foreign-funded enterprises accounted for 50.8 percent of bilateral merchandise trade last year. They also directly employed 6.4 million people, and millions more workers relied on them for a job indirectly in such sectors as distribution.
To maximize the benefits and minimize the costs of FDI, China's main but not sole need is to attract more longer-term projects involving high-technology, capital-intensive methods of production and to expand from FDI in manufacturing to FDI in the service sector, said Hu.
China's accession to the World Trade Organization (WTO) provided an excellent opportunity to help upgrade the quality of FDI, according to Kenneth Davies, principal administrator and senior economist of the Directorate for Financial, Fiscal and Enterprise Affairs of the Organization for Economic Co-operation and Development.
Many incentives currently provided by the Chinese Government, such as rectification of its legal system and standardization of market order, are very attractive to high-quality FDI, he said.
In addition to removing trade-related investment measures such as the foreign-exchange balance requirement, China is opening up its service sectors, including the financial sector.
"Another category that is attractive to FDI is that of rule-based incentives, which are less easy to define and more difficult to implement than fiscal and convenience-based incentives," Davies said.
This category includes the legal environment in which FDI operates. In a short period of time, China has established a wide-ranging body of FDI-related legislation. It is also striving to develop an impartial and effective court system.
"But, for institutional and manpower reasons, this work will take years, rather than months, to achieve its objective," said Davies.
The effective implementation of the law matters because investors, whether foreign or Chinese, need to have guaranteed property rights, including intellectual property rights. Flagrant violations of such rights do not encourage multinational corporations to bring their most advanced technology to China.
Much stronger implementation is needed of Chinese legislation protecting intellectual property rights and China's international commitments in this regard, not just to attract FDI but also to stimulate domestic creativity.
（China Daily September 11, 2002）
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