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Long-term projects, high technology can reduce costs, maximize benefits

China needs to attract more high-quality foreign direct investment (FDI) to further upgrade its competitiveness.

"FDI will continue to play a leading role in bringing new technology to many fields such as manufacturing and telecommunications,'' said Hu Jingyan, director of the Foreign Investment Department of the Ministry of Foreign Trade and Economic Co-operation (MOFTEC).

He was speaking at the "Attracting High-Quality FDI Forum'' yesterday at the ongoing Sixth China International Fair for Trade and Investment (CIFIT).

"However, the new challenge is attracting higher quality FDI,'' Hu said.

FDI projects in China still tend to be short-term, low technology and labour-intensive.
MOFTEC figures revealed that China had attracted US$424.77 billion in actual utilized foreign investment by the end of July.

Foreign-invested enterprises accounted for 50.8 per cent of two-way merchandise trade last year. They also provided employment to 6.4 million people directly last year, and to millions more indirectly in such sectors as distribution.

To maximize the benefits and minimize the costs of FDI, China needs largely to attract more longer-term projects embodying high-technology, capital-intensive methods of production and to expand from FDI in manufacturing to FDI in service industries, he urged.

China's accession to the World Trade Organization (WTO) has created an excellent opportunity to help upgrade its FDI quality, according to Kenneth Davies, principal administrator and senior economist of the Directorate for Financial, Fiscal and Enterprise Affairs at the Organization for Economic and Co-operation Development (OECD).

Many incentives currently offered by the Chinese Government are very attractive to high-quality FDI, such as rectification of its legal system and standardization of the market order, he said.
In addition to the removal of trade-related investment measures (TRIMs), such as the foreign-exchange balancing requirement, China is opening its services sectors wider, including the financial sector.

As a result, existing foreign-invested enterprises will be able to do many things they were formerly not permitted to do, such as distribute their products in China and engage directly in foreign trade.

These changes will also provide an opportunity for OECD members to play a bigger role in making direct investment in China, said Davies.

"Another category of FDI attraction is that of rules-based incentives, which are less easy to define and more difficult to implement than fiscal and convenience-based incentives,'' he said.
This includes the legal environment in which FDI operates. China has, in a remarkably short period of time, established a wide-ranging body of FDI-related legislations and is striving to develop an impartial and effective court system.

"But, for institutional and manpower reasons, this work will take years, rather than months, to achieve its objective,'' Davies said.

Effective implementation of legal matters is vital because domestic and foreign investors need to have guaranteed property rights, including intellectual property rights.

Many flagrant IPR violations that are reported continue unchecked year after year and these do not encourage multinational corporations to bring their most advanced technology to China.

Stronger implementation of China's IPR protection legislation and its international commitments in this regard is needed, not just to attract FDI but also to stimulate domestic creativity.

China has this year made further progress in increasing the transparency of its trade and investment regime in line with its WTO commitments.

Investors appreciate transparency and stable and predictable FDI policies that do not change suddenly with the announcement of a new law.

They do not appreciate any set of regulations that has not been publicly discussed and which had no opportunity to influence during its preparation.

It is important to recognize the improvements that have been made in this regard in recent years, Davies said.

Holland welcomes Chinese investors

The Netherlands is eager to strengthen economic and trade co-operation with China by introducing more Chinese investors to its markets.

"We warmly welcome far-sighted Chinese entrepreneurs to invest in the Netherlands, while Dutch investors will maintain their investment enthusiasm in China,'' said Pieter Gooren, a senior official with the Consulate General of the Netherlands in Guangzhou.

Gooren made the remarks yesterday at a seminar themed "the Netherlands, Your Knowledge Partner'' during the Sixth China International Fair for Investment and Trade.

Now that China has become a member of the World Trade Organization (WTO), the time is right for Chinese entrepreneurs to pay more attention to the global market, said Gooren.

"And the Netherlands is an ideal investment destination,'' said Paul H. M. Scheffer, vice-chairman of the West-Holland Foreign Investment Agency.

He added the Netherlands is always open to those investors with new ideas, projects and plans.
Geographically speaking, the Netherlands is a gateway to other European countries, offering numerous business opportunities to investors, Scheffer noted.

"Moreover, the Netherlands has perfect infrastructure construction in terms of transportation, telecommunications and other aspects, and a sound legal framework to protect the rights of foreign investors,'' said Scheffer.

Dutch investors also expressed their desire to establish themselves more in the Chinese market.
"Dutch companies are happy to co-operate with Chinese counterparts in all areas of the agricultural sector, based on the principles of mutual benefit,'' said Herbert A. van Sluys, an official at the Association of Enterprises in the Mechanical, Metalworking, Plastics, Electronic and Electrical Engineering Industries and Allied Sectors.

Both China and the Netherlands are large countries producing agricultural products.

But in terms of development and efficiency, China lags far behind the Netherlands.

"The advanced technology of the Netherlands is expected to play a vital role in the invigoration of its food industry in China,'' Sluys noted.

The Netherlands, a prominent player in the world in the food processing industry and expertise in agricultural research, has a long history of co-operation with China.

In recent years, Sino-Dutch co-operation has developed strongly.

The Netherlands is China's third biggest trade partner among European Union countries.

Bilateral trade and economic co-operation have rocketed in recent years, figures from the Ministry of Foreign Trade and Economic Co-operation revealed.

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