Changes in China's Foreign Investment Policy and the Response of Foreign-Invested Companies

Summary 1. The ability to anticipate changes in China’s economic situation has become increasingly important in recent years because of China’s growing influence on East Asian economies. As part of the global economy, China is also more open to influ ences from other countries, especially its neighbors in Asia. Recent developments that are likely to have a key bearing on Asia’s economic future include China’s transition to stable growth, the emergence of the Indian economy, and moves toward economic integration in ASEAN. 2. While China continues to achieve growth in excess of 10%, it is also affected by growing imbalances, including overheated investment, trade friction and the expansion of disparity. The government has sought to solve these problems by achieving high economic growth. Recognizing that expanding disparity has the potential to cause political instability and impede sustainable growth, the government has also started to tackle the fundamental causes of this problem. The 11th Five-Year Plan contains specific numerical targets for this purpose. The plan also calls for the establishment of a more advanced industrial structure through measures that include the development of high-tech industries, and accelerated development of service industries. 3. We need to be aware that this situation has resulted in significant changes in Chi na’s foreign investment policy. Currently foreign investment policy is guided by three basic criteria. First, will investment lead to the introduction of advanced technology and management methods? Second, will investment contribute to environmental protection, resource conservation and progress on energy policies? Third, will investment contribute to the advancement of China’s domestic industrial structure and technology standards? In general, there is a growing tendency to induce investment in areas that reflect the government’s aims. 4. One of the changes that has occurred in China’s industrial structure since the implementation of the reform and open-door policy is the development of more advanced manufacturing industries through the introduction of foreign investment. There are also problems, however, including the fact that the primary sector still accounts for a high percentage of jobs, and the slow pace of service industry development. The government is responding to these issues by working to develop service industries and increase their capacity to absorb surplus rural labor through measures that include the