In­vest­ment laws re­vised by next year

China Daily (Canada) - - FRONT PAGE - By LI JI­ABAO in Bei­jing and JACK FREIFELDER in New York

Re­vi­sions to China’s for­eign in­vest­ment laws are likely to be con­cluded by 2015, when the fo­cus will shift to the su­per­vi­sion of in­di­vid­ual in­vestors and their re­spec­tive con­duct, ac­cord­ing to an of­fi­cial with China’s Min­istry of Com­merce.

As­sis­tant min­is­ter of com­merce Wang Shouwen said that tweaks to rules re­gard­ing for­eign di­rect in­vest­ment (FDI) in China “will prob­a­bly be com­pleted within the 12th Five-Year Plan”, which cov­ers the years from 2011 to 2015.

“It’s still hard to say what the fi­nal ver­sions will be like, but the re­vi­sion of for­eign in­vest­ment laws is a key project,” Wang said Thurs­day in an in­ter­view with China Daily. “The es­sen­tial thing is that it will shift from the reg­u­la­tion of en­ter­prises to the su­per­vi­sion of in­vestors and their in­vest­ment be­hav­ior.”

“The re­vised for­eign in­vest­ment laws will de­fine in­vestors and in­vest­ment con­duct, but the stip­u­la­tions in the Com­pa­nies Law will re­main in force,” he said.

The Com­pa­nies Law of the Peo­ple’s Repub­lic of China was adopted in 1993 as a mech­a­nism to help reg­u­late the or­ga­ni­za­tion and op­er­a­tion of com­pa­nies in the in­ter­est of a mar­ket-driven economic struc­ture.

If the lib­er­al­iza­tion agenda an­nounced by Pres­i­dent Xi Jin­ping dur­ing the Third Plenum takes hold, then US in­vest­ment in China should be set to in­crease, ac­cord­ing to Gary Huf­bauer, a se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics.

“A big in­crease in US in­vest­ment in China de­pends pretty im­por­tantly on Chi­nese ac­cep­tance of merg­ers and ac­qui­si­tions (M&A),” Huf­bauer said in a Thurs­day phone in­ter­view with China Daily. “As Pres­i­dent Xi and his team con­sol­i­date their power and com­pel some of the state-owned en­ter­prises (SOEs) to be open to col­lab­o­ra­tion with for­eign firms, I ex­pect there will be more of this in the years ahead.”

Wang said gov­ern­ment of­fi­cials are “also re­view­ing” the poli­cies in the China (Shang­hai) Pilot Free Trade Zone (FTZ) to “help build a uni­fied, open, com­pet­i­tive and or­derly mar­ket”.

The FTZ, which func­tions as a trial re­gion for a num­ber of economic re­forms, was ap­proved in Au­gust 2013 and of­fi­cially launched the fol­low­ing month.

It in­cludes a neg­a­tive list ap­proach, which de­tails sec­tors barred to for­eign in­vest­ment, as well as “pre-es­tab­lish­ment na­tional treat­ment,” which gives for­eign en­ter­prises the same stand­ing as do­mes­tic com­pa­nies.

China was the world’s sec­ond-largest re­cip­i­ent of for­eign di­rect in­vest­ment af­ter the United States last year. But in the first seven months of this year, ac­tual FDI in­flows, ex­clud­ing the fi­nan­cial sec­tor, slid 0.35 per­cent from a year ear­lier to $71.14 bil­lion, ac­cord­ing to the Min­istry of Com­merce.

And in July, FDI into China to­taled just $7.8 bil­lion, a 17 per­cent de­crease year-over-year and the low­est monthly fig­ure in two years, ac­cord­ing to a Mon­day re­port in The Wall Street Jour­nal. FDI into China slowed in that pe­riod, but out­bound FDI from China hit a new high of $52.6 bil­lion — a 4 per­cent climb from a year ago.

Wang said the FDI de­cline in the first seven months of the year was caused by lag­ging in­vest­ment in ex­por­to­ri­ented and la­bor-in­ten­sive sec­tors, cou­pled with ris­ing costs for la­bor, land and re­sources.

Cit­ing a re­port from the United Na­tions Con­fer­ence on Trade and Devel­op­ment, Wang noted that China re­mains the world’s most at­trac­tive in­vest­ment des­ti­na­tion, and the in­vest­ment en­vi­ron­ment is “im­prov­ing rather than de­te­ri­o­rat­ing” de­spite re­cent probes into for­eign com­pa­nies such as BMW AG and Mi­crosoft Corp.

Huf­bauer said there are some US com­pa­nies that are “very en­thu­si­as­tic” about the Shang­hai FTZ and the po­ten­tial it holds for future in­vest­ments in China.

“Within the next cou­ple of years, I think the Shang­hai FTZ will be repli­cated in other parts of China — prob­a­bly with some mod­i­fi­ca­tions and changes,” Huf­bauer said. “Other cities in China would cer­tainly want to have [an FTZ], and af­ter they work out some of the kinks they will get it.”

“Based on what Chi­nese au­thor­i­ties have said, I don’t ex­pect to see any lib­er­al­iza­tion or for­eign M&A in some of the pin­na­cles of the state-owned en­ter­prise regime in China.” Con­tact the writ­ers at li­ji­abao@chi­ and jack­freifelder@chi­nadai­lyusa.

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