China will keep rolling out the red carpet for foreign investors if they put the money into the right areas, senior officials said on Tuesday.
Tighter curbs on foreign acquisitions introduced last year, along with plans to abolish tax breaks for overseas firms, have fanned concern that Beijing is turning cool towards foreign direct investment (FDI), which exceeded $1 billion a week since China joined the World Trade Organization (WTO) in 2001.
Fu Ziying, an assistant minister of commerce, told a forum that Beijing would continue to welcome FDI, but he urged foreign businessmen in his audience to invest in China’s poorer Western provinces and to help upgrade state firms.
High-technology investment would go down well, as would environment-friendly projects. But Bejing would frown on polluting factories, Fu said.
“Investing in China is investing in hope and the future, and we hope more multinationals will come into China; by investing in China, you will certainly harvest a fortune,” Fu said.
Zheng Xinli, an economist with the ruling Communist Party’s policy research office, said China and foreign firms had realized “win-win” results in the three decades since China opened its market to the outside world.
China’s drive to clean up its environment and upgrade its economy would create more, not fewer, profitable opportunities for foreign investors, Zheng added.
Excluding investment in the financial sector, FDI last year rose 4.5% to $63.02 billion as foreign firms sought to take advantage of a deep pool of cheap labour and a domestic market of more than 1.3 billion people.
The Commerce Ministry boasts that China has drawn more FDI than any other developing economy for the past 16 years.
But something of a backlash has developed in the past year as some Chinese researchers argue that competition from foreign firms was jeopardising domestic industries.
Although gross FDI inflows keep rising, China has become more selective: US buyout firm Carlyle Group is still awaiting approval to buy into Xugong, China’s biggest machinery maker; a bid by Germany’s Schaeffler Group to take over Luoyang Bearing, a firm deemed strategically important, is on hold.
Wang Zhile, a researcher with the Ministry of Commerce’s think-tank, conceded that Chinese media coverage of FDI was getting more negative, but he said the government’s commitment to opening up the economy had not changed.
Foreign investment is under attack from another quarter, however. In a complaint filed on Friday with the WTO, the United States demanded sweeping changes to Chinese tax policies that it says favours foreign-funded exporters and discourages imports.
Wang said Beijing was already adjusting policies on income tax, export tax rebates, land supply, processing trade and labour. While the tweaks might have impact on foreign firms in China, he said the basic thrust of welcoming FDI had not changed.
“The government is trying to attract foreign investment through the appeal of the market instead of preferential policies,” said Wang.