The Fortune 500 companies have increased their investment in East China¡¯s FujianProvince.
    They are lured by the province¡¯s efficient and open government and optimized investment climate.
    According to Fujian¡¯s Foreign Trade and Economic Co-operation Bureau, about 80 leading transnational corporations, including Kodak, ABB, Wal-Mart, Boeing, General Motors, Dell and Siemens, had invested in 102 projects in the province by the end of 2004. The total utilized overseas investement of the projects have recorded US$2.1 billion.
    Meanwhile, 17,000 other overseasfunded companies have capitalized on projects in Fujian.
    The world leading personal computer maker Dell has signed an agreement with the city government of Xiamen, the only special economic zone in Fujian, for a new manufacturing plant.
    The construction of the new plant, located in the Xiamen Torch High-Tech Zone adjacent to the airport, began in April. It is due to open early next year.
    The completion of Dell¡¯s second plant in China will boost the company¡¯s annual production capacity to 10 million units from the current 4 million, making Xiamen the largest computer manufacturing centre in Chinese mainland¡°It¡¯s the effi cient, practical and open government that reinforces Dell¡¯s investment confi dence,¡± said Li Yuanjun, general manager of Dell China, adding that new investment is possible when business fl ourishes.
    The new investment decision was made shortly after it set up the first Asia-Pacific directing centre for enterprise services in Xiamen last September to provide technical support to clients in China and North Asia.
    Dell first came to Xiamen in 1998, and its first factory opened in 2001.
    Overseas-funded companies such as Dell were extremely active in adding to investment last year, and the trend is continuing.
    Official f igures showed that overseas-funded companies in Fujian invested a total of US$1.35 billion capital last year, an increase of 32.2 per cent from 2003.
    Companies that operate solely by overseas funding outperformed other categories by injecting nearly US$1.1 billion, or 78.7 per cent, of the new investment.
    The new investments from


The film production line of Kodak(China)Co Ltd

existing overseas-funded companies accounted for 25.2 per cent of the newly signed contractual overseas capital of the province in 2004, up 3.7 percentage points from a year earlier.
    The local governments in Fujian pledged to improve the environment to attract more overseas investment.
    The completion of several major infrastructure projects ¨C including the new facilities of Houshi Electric Power Plant in Zhangzhou, the sea route for vessels of 100,000 deadweight tons of Xiamen Bay and Liancheng Airport ¨C are just part of what the province is doing.
    The road network was also upgraded with the Sanfu Highway and the Zhangzhou section ofZhangzhou-Longyan Highway opening through last year.
    So far, the total length of highways in Fujian has surpassed 1,000 kilometres, and the main structure of the road network has taken shape.
    More convenient transportation will accelerate the development of the mountainous regions, opening new investment opportunities to overseas investors, Fujian government officials said.
Also, Fujian intends to take advantage of its proximity to TaiwanProvince across the Straits to offer ¡°an open, harmonious and prosperous economic zone on the west bank of the Strait.¡±
    By taking the country¡¯s regional economic layout and the economic globalization into account, Fujian has re-positioned itself and sought co-operation from the two neighbouring booming regions, the Yangtze and Pearl river deltas.
    Encouraged by the province¡¯s new blueprint, overseas investors moved to the hotbed to explore new investment opportunities.
    Contracts were signed on about 2,280 projects with direct foreign investment in the province


last year, involving US$5.37 billion, up 12.6 per cent from a year ago. Of the contractual capital, about US$4.75 billion has been actually used, up 16.5 per cent over the previous year.
    In the first three months of this year, the province attracted 557 new investment projects worth US$1.5 billion. Of that f igure, US$780 million has been used, an increase of 58 per cent over the same period a year ago.
    The government officials said the province has benefited from the foreign investment aside from the capital inflow.
    The overseas-funded investment, especially from transnationals, has had a positive impact on the province¡¯s industrial restructuring, industrial quality, employment and development of new technology, they said.
     Manufacturing in Fujian has been developed to the point that the low-tech, labour-intensive industries have moved out in favour of hightech industries.
    ¡°We still have the labour advantage, and they are taking on high technologies to become skilful workers, which laid a sound foundation for the province to develop high-tech industry,¡± one expert said.
    The investment of the transnationals will also give an impetus to local industries with which they deal.
    For example, the arrival of the Taikoo Aircraft Engineering Co in Xiamen soon brought in a number of such big names of the industry as Boeing and GM. They eventually boosted the aviation maintenance industry in the city.
    The entry of German retailer giant METRO AG also helped the local retail market thrive.
    Of the approximately 20 stores in China, METRO has two in Fujian, one in Fuzhou and one in Xiamen.
    The main reason for Fuzhou introduced METRO into the local market was that the advanced operation and service philosophies of the international retailing leader energized the local market with more competition.
    As expected, the entire market was soon reshuff led. Many small supermarkets went bankrupt, and other local supermarkets matured by adopting new operational ideas.
    As a result, the industry in Fuzhou became stronger.
    METRO has also gained a firm foothold in the booming Fuzhou retail market by attracting more than 70,000 members since the store was opened in July 2000.

       To the relief of anxious Chinese textile exporters, a last-minute agreement has forestalled a looming trade war between China and the European Union (EU).
     The China-EU deal reached late on June 10 will allow the reasonable growth of Chinese textile exports while "giving respite and a much-needed breathing space" for European industries, as the EU trade chief Peter Mandelson said at Saturday's press conference in Beijing.
      Undoubtedly, this is a hard-won win-win solution in the sense of avoiding a trade war. The sincerity and respect for mutual benefits both sides expressed in resolving the trade row were truly remarkable. They not only brought about a "mutually acceptable" result, as Mandelson said, but also showed a desirable approach for settling trade rows.
      In an era of accelerated economic interdependence, it is consultation, not confrontation, that leads to solutions to trade standoffs which are in the interests of all sides.
      A surge of Chinese textile exports following the removal of the global quota system at the start of this year is a surprise to nobody given China's comparative advantage in this and other labour-intensive sectors. A huge, cheap and relatively skilled labour force should have enabled the country to claim a much bigger share of the global textile market years ago, had developed countries not imposed quotas on its textiles.
      As a trade-off for expanded future market access after its entry into the World Trade Organization (WTO), China accepted such a quota system, an odd by-product of the global trading body against its core principle of free trade, to give developed countries time to undertake necessary industrial restructuring.
     Hence, it is up to those developed countries, which have benefited tremendously from increased access to developing

countries' markets, to open their own markets in line with WTO rules.
     Unfortunately, before the quota system expired on January 1, 2005, few developed countries worked seriously
to prepare for the post-quota market.
     Instead, some countries attempted to resort to the outdated quota system, risking a major setback in creating a free and fair global trade order.
     However, as trade tensions have already significantly escalated, the urgent thing is not to trade criticism but instead try to understand each side's difficulties and fundamental interests.
     The latest deal China and the European Union have sealed sets a good example for the international community which is increasingly threatened by some countries' unilateral protectionist acts.
     By capping the growth of Chinese textile and clothes exports to the EU in the coming three years, the China-EU agreement provides a stable environment for Chinese exporters. It also gives European manufacturers a period to adapt to Chinese textile imports.
     In the long run, the deal helps prevent protectionism from undermining European consumers' rights to enjoy the cheaper goods guaranteed by free trade.
     The deal also helps strengthen rapidly growing economic ties between China and the European Union. With a bilateral trade volume of US$177.3 billion, the EU replaced the United States as China's largest trading partner last year.
     Overall, the deal gives a shot in the arm to all those who are really committed to a global trade order which works for everyone.

      The debate over whether the Renminbi should be revalued has grabbed global attention. If revaluation is deemed necessary, then the question is, by how much? How would China and the rest of the world be affected by an appreciated yuan? These are not only the hottest topics in financial markets, but also convenient excuses for money trade speculation.
      Whether the yuan is undervalued or not may be another story. But there is no denying that the current RMB exchange rate system, mechanism and level are not without ambiguities and weaknesses. The recent fast growth in the foreign reserve, soaring property values and other fixed assets, along with sharp hikes in the prices of raw materials such as iron ore and crude oil in the international market have, in one way or another, been attributed to the RMB exchange rate. An analyst has said that if the RMB exchange rate regime remains as it is, China's foreign reserve will continue its brisk build-up this year, greatly increasing the chances of serious inflation. The central bank, for its part, would have to live with the growing cost and the inherent risk this entails.
       National interest should prompt China to change the RMB exchange rate system eventually. Meanwhile, the central government is waiting for the right time and way to effect the change.
      The Chinese Government has promised time and again to reform the exchange system, but it has never outlined a timetable to do so. The reason: China's

financial system is not ready for it. Other countries' similar experiences show that such strategic reforms must meet certain conditions and follow a gradual process.
    China, too, has to meet certain conditions before adjusting its foreign exchange rate regime, by accelerating domestic financial institution reforms, putting a complete set of legal and accounting systems in place, having a foreign exchange market that caters to exchange rate fluctuations, and opening up anexchange rate and capital account.
    The United States has been the most vocal of those countries demanding an immediate revaluation of the yuan. The publicized rationale behind the hysteria is that the undervalued yuan has caused job losses in its manufacturing sector and created a serious budget deficit in the US.
    The argument is not only ill-conceived, but also obsolete, reminiscent of the 1970s when Washington forced Tokyo to revalue the yen, citing exactly the same excuses. The truth is that under the existing exchange regime, US imports from cost-efficient Chinese manufacturers, rather than those from countries producing more expensive goods, actually help offset some of its trade deficit. In addition, cheaper, made-in-China products allow the US to better handle the pressures of "weak dollar"-induced inflation.
      No less important is the fact that China's export value is much smaller than that of the US trade deficit, which is the result of trade imbalances with its trading

partners, not of the undervalued yuan. Under the circumstances, revaluation of the yuan cannot cure US economic ills, irrespective of the rate of appreciation. On the contrary, a stronger yuan will push US interest rates up and worsen its economic woes.
    The RMB exchange rate system should indeed be changed, not to suit the US but for the following reasons:
    1) exchange system reform is necessary to build a market economy and is a key component of China's financial system reforms;
    2) exchange system reform should be carried out only when China's actual conditions allow it. Close attention should be paid as well to enterprises' capacity to bear the impact, to the progress of the country's financial system reforms and to the effect on foreign trade;
     3) like every other sovereign country, China reserves the exclusive right to maintain an exchange system and level that suit its real conditions. We respect the law of the market economy but will never bow to outside pressure. Bombardment by the media or politicizing the issue will never solve the problem.
     The People's Bank of China Governor Zhou Xiaochuan reiterated the other day that China's economic reforms have been successful because they were conducted in an orderly and gradual manner, and that the central bank will proceed with exchange system reform in kind. We think this approach is sensible and can be put into practice successfully.

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Editorial Department of International Investment Express for the ninth China International Fair for Investment and Trade
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