People's Daily Online - China's FDI entered a phase of steady rises (2)

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Drop in FDI is not bad news

Question: What kind of impact will the trend have on the Chinese economy?

Shen Danyang: FDI to China will continue to grow in the coming months, but we should stop the decline of foreign direct investment in the non-financial sector. Overseas direct investment in China this year could only increase by a little bit or maintain at same level it was two years ago. The good news is that the investment structure will be improved and reorganized. China''s capacity to use foreign direct investment will be improved in following aspects:

First of all, the gap between east, central, and western China in drawing foreign direct investment will be narrowed. Since China launched the western development strategy in 1999 to help the relatively lagging area, FDI in the central and western provinces has increased. If more effective policies are created, the gap between the east and poor central, western provinces will become smaller.

Secondly, foreign investment in the service sector is expected to maintain robust growth. At the expiration of the three-year transitional period for China''s accession into the WTO, the service industry will be opened up to foreign investors and maintain robust growth. Actual use of foreign funds in agriculture and related industries may surge by a large margin while investment in real estate will to be regulated. However, contracted foreign investment and actual foreign investment utilization in the manufacturing sector will decrease.

In addition, Asia remains to be China''s source for major foreign funds. However, as the service sector further opens up, foreign investment from the European Union and the US will increase. According to a survey by the American Chamber of Commerce People''s Republic of China, over 90 percent of U.S. enterprises are optimistic about their business in China in the next five years.

As China is gradually perfecting its laws on the M&As of domestic enterprises with foreign investors; foreign investors are becoming more confident in their development in China. Major domestic enterprises in key industries have been involved in the M&A foreign investment. Therefore, a drop in FDI is not necessarily bad news.

Optimize FDI policy

Question: In which aspects should China optimize its FDI structure?

Shen Danyang: We must understand that FDI appeal is largely correlated with economic growth. Although a slower pace in the FDI increase can ease China''s pressure from over-heated domestic investment; the proportion of foreign direct investment in the Chinese economy is not small. The downward trend will have certain impacts on the pace and quality of China''s economic growth if this trend continues.

Facing this new trend, we must take into account various factors and explore effective ways to attract foreign funds.

China is badly in need of a mechanism that could promote balance in the absorption of foreign funds in eastern, central, and western provinces. It is important for China to effectively put foreign funds toward the advancement of technology. China can selectively introduce programs it needs; map out preferential policies; and guide, encourage and lure foreign investors into China. In addition, China should also consider how to regulate investment liberalization, and how to combine the process with China''s development.

By People''s Daily Online
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