Redefining FDI

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Last year there was a lot of debate within China about the role of foreign investors in China (there were even suggestions that some foreign investors were “malicious” and were a danger to China’s long-term development).

Now, after tax incentives for foreign investors have already been addressed, and as protectionist tendencies have been seen lurking, AFP reports that:

    “China has released new rules to prohibit or limit foreign investment in key industries as it seeks to cool its overheated economy and clean up its damaged environment, state press reported Thursday.

    In a wide-ranging directive published late Wednesday, China’s key economic developmental agency identified sectors from real estate and financials to oil and rare metals as restricted or off limits to foreign capital. Overseas investment that can help China to protect the environment, cut pollution and develop renewable energy will be encouraged, according to the National Development and Reform Commission statement.

    …Investment in high technology and advanced materials and equipment manufacturing will also be welcome, but those in production industries in which China has mature technologies and capacity will not be encouraged, it said.

    The directive highlights Beijing’s latest policy initiative to restructure its export-driven economy whose booming but lopsided growth has for decades relied on government and foreign investment to expand.”

Sectors that will be restricted (Xinhua reports that the rules go into force on December 1st) are said to include:

    • Non-renewable mineral resources (including tungsten, tin, antimony, molybdenum)

    • Investment in small and mid-sized oil refineries

    • Refining of copper, zinc, aluminium and rare earths

    • Exploration for gold, silver and platinum

    • High end real estate (including hotels and malls, property agent companies and brokerages)

    • Financial services (where current restrictions will continue)

It is clear that China’s direction is towards quality over quantity of FDI, and that key “strategic” sectors (whatever they may be) will remain under state control. These moves have been in the pipeline for some time, and are influenced by a variety of domestic and international political and economic factors (including growing economic nationalism in China, as well as protectionism and trade deficit worries abroad). It will be interesting to see what reaction there is to these moves – and how far and how fast (and how evenly across the country) they are implemented in practice.

In the meantime, a lot of new corporate policy and risk analysis reports can be expected!

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6 Responses to “Redefining FDI”

  1. Administrator Says:

    China Law Blog’s (ever expert) legal analysis is now availalbe here:
    Breaking News: China Changes Foreign Investment (FDI) Rules
    http://www.chinalawblog.com/2007/11/breaking_news_china_changes_fo.html

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