Q: In the past few years, the Chinese Government has
adopted a series of macro-control measures to control overheated
investment in some industries. Why did China adopt these measures?
Will the measures have a negative impact on foreign
investment?
A: Every country exercises macro-economic control. Since 2003,
China has adopted some macro-control measures to cool down
overheated investment in iron and steel, aluminum and cement
industries. It is because those industries consume much energy and
create a great deal of pollution. Furthermore, production capacity
of these industries had far exceeded demand. The completion of the
new projects, most of which are low-level and redundant, will
further aggravate the situation. Without proper macro-economic
control, these projects will bring negative impact to China's
economy.
It should be pointed out that a more important purpose of the
macro-control is to minimize the risks of the banking system.
Foreign-invested companies are not the major targets of this
macro-control. So in general foreign-invested companies may not be
greatly affected.
In a long-term viewpoint, the adoption of the macro control
measures is beneficial to the development of foreign-invested
companies. If the Chinese economy becomes overheated, foreign
investment will face more risks. Macro control will reduce the
risks brought about by an overheated economy, and make the market
more reasonable. For foreign companies with a desire to enter
China, the macro control will not affect their investment
interests. On the contrary, it creates a safer environment for the
long-term strategy of foreign businesses. For instance, in this
round of macro-control, China has enhanced control in real estate,
strictly standardized the property market, and strengthened control
on the bank loans in order to draw out incapable middle- and
small-sized real estate enterprises. Hence, foreign-invested
companies could take this opportunity and enter the Chinese real
estate market quickly with their advantage in funds. The iron and
steel industry is more overheated than the real estate sector. The
government's restriction on investment in the iron and steel
industry is aimed at middle- and low-level steel plate plants. The
quality products of foreign-invested plants are in great demand in
the country. Such demand will drive foreign investment to enter
China's iron and steel industry under macro control.
As the Chinese macro-control policy has either restricted or
protected foreign capital, foreign businessmen have also adopted
flexible corresponding measures, which can be seen in their
adjustment of their direct investment structure. In 2004, foreign
investment in high-tech fields increased substantially. That in the
manufacturing of electronic parts and components, specific and
general devices, as well as in software and computer services also
registered comprehensive increase. The fact that more and more
foreign businesses have invested in research and development
centers and established their regional headquarters in China proves
that China's macro-control policies has not brought much negative
impact on foreign investment.