Promote and Control Plan for Foreign Investment

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The two faces for foreign investment theme continues. Foreign investment policy over the current 5-year plan (according to a report in People’s Daily quoting a statement from developed by the National Development and Reform Commission) will seek to promote:

    • Quality over quantity
    • Importing and developing advanced technologies
    • Gaining and experienced and high-quality managing intellectuals instead of making up for the shortage of capital and foreign exchanges.
    • Environmental protection
    • Efficient use of natural resources
    • Re-organisation of domestic firms through mergers and acquisitions

The article also notes the Anti-Monopoly Law, which could be seen as a balance to the removal of other barriers to foreign investors in “sensitive industries” (see more here and here). Indeed, the article states that part of the purpose of the law is to “secure the state’s control over the development of those strategic industries and major enterprises”.

Industries where foreign investment will be promoted include: electronic information, petro-chemicals, chemicals, automobiles, machinery, light industry, textiles, raw materials, construction and building materials, infrastructure facilities, banks, insurance, securities, telecommunications, commerce and freight transport.

In the 10th 5-Year Plan (2001-2005), US$286 billion of actual foreign direct investment (FDI) came into China, according to the NDRC. The impact of this investment has generally been positive – and has been carefully guided by the government. However, there have been growing concerns about the role of foreign investors, and control of strategic assets and industries, as the investment environment become deregulated.

But how will the policies play out in practice? It is difficult to say, and there are likely to be positive and negative experiences as the pro and anti-foreign lobbies take action. But it is interesting to note what is going on with the long-running saga of Carlyle and its planned purchase of Xugong. The FT reports that the government intervened at a senior level last month in a highly unusual effort to try and get a breakthrough. And it was no ordinary meeting, the report staes:

    “The landmark three-day gathering involved bureaucrats from six departments including the Ministry of Commerce and the China Securities Regulatory Commission…Shareholders, competitors, suppliers and customers of Xugong, the construction machinery giant, were invited to speak. Carlyle was not invited.”

The government has already dictated that any big equipment makers must seek approval before selling to foreign investors. The FT suggests that the Xugong move was an attempt to open a policy debate on the issue before a decision is made. It may have also been prompted by US government pressure for the deal.

In any event, politics and policy will remain important issues for foreign investors in China, who would be well advised to maintain good government relations, and to ensure that large, strategically important projects are presented with sensitivity.

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5 Responses to “Promote and Control Plan for Foreign Investment”

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