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Investment Environment

The 16th National Congress of the Communist Party of China (CPC) was held in November 2002 and put forward new tasks for Chinese economic construction and reform of economic structure:
--------Take a new road to industrialization and implement the strategy of rejuvenating the nation through science and education and that of sustainable development.
--------Make the rural economy flourish and speed up urbanization.
--------Advance the development of the western region and bring about a coordinated development of regional economies.
--------Stick to and improve the basic economic system and deepen the reform of the state property management system..
--------Improve the modern market system and tighten and improve macroeconomic control.
--------Deepen the reform of the income distribution system and improve the social security system.
--------Do a better job in opening up by "bringing in" and "going out".
--------Do everything possible to create more jobs and improve the people’s lives.
In light of the new trends in the economy, science and technology of the world and the requirements of our national economic development in the new period, we should undertake the following main tasks for economic development and reform in the first two decades of this century: to improve the socialist market economy, promote strategic adjustment of the economic structure, basically accomplish industrialization, energetically apply IT, accelerate modernization, maintain a sustained, rapid and sound development of the national economy and steadily uplift the people’s living standards. Stick to and improve the basic economic system and deepen the reform of the state property management system. In line with the requirements of releasing and developing the productive forces, we must uphold and improve the basic economic system, with public ownership playing a dominant role and diverse forms of ownership developing side by side.
Public economy includes not only the state-owned economy and collectively owned economy, but also the state-owned and collective ownership in the mixed ownership economy. The dominant position of public ownership mainly lies in the following points: public assets take the superiority in the total social assets; and the state-owned economy controls the lifeline of national economy and plays a leading role in economic development. Collective ownership economy is an important component of public economy. The collective sector may embody the principle of common prosperity, broadly absorb the dispersed social capital, relieve the social pressure and increase the common accumulation and state taxation.
It is a must to establish a sound system of management, supervision and operation for state assets, and financial and foreign exchange control in order to effectively maintain and increase the value and prevent losses of state assets. It is also necessary to fully exert the leading role of the People’s Bank of China in the financial system. The People’s Bank of China is China’s central bank and is responsible for the establishment and implementation of the national financial policies, and adjusts the currency circulation and credit. The People’s Bank of China also exercises supervision and management on the whole financial activities. To expand the functions of the state-owned commercial banks and the national policy banks in the financial fields and develop non-bank financial institution and perfect social financing channel is also very important.
To perfect the foreign exchange administration of capital accounts and boost with order Renminbi convertibility under capital accounts; to ameliorate the formation system of Renminbi exchange rate and to enhance the supervision and management on the foreign exchange business of the financial institutions are necessary measures.
China’s market economic system is an open economy. After more than 20 years’ reform and opening up, an all-dimensional, multi-layered and wide-ranging opening pattern has been initially formed. The opening regions including special economic zones, national economic development zones and high-tech parks, etc. have been established, which will promote the development of national and regional economy.


Natural Resources

Land Resources　China has 9.6 million square kilometers land area, accounting for 22.1% of the land area of the Asian continent, and accounting for 6.4% of the world’s land area, it is one of the countries which have a vast area of land. China’s abundant land resources has two significant geographical features: 1, The share of mountains which have higher elevations and greater volatility (including hill, mountainous and tableland) over the plains (plains and the high plains), as the ratio of two-thirds and one-third; 2, In complex and diverse ecological environment, formed the features of more grassland, limited arable land, low forest percentage and the percentage of land which difficult to use is high. At present, grassland accounts for 37.4% of the total land area of China, farmland accounts for 10.4%, woodland accounts for 12.7%, and the land such as desert, Gobi, high and cold desert, tor, mountain glaciers and permanent snow which are difficult to use accounted for 20.5%. Nevertheless, it still has great potential for further rational use of land resources in China, in addition to the existing lawn, woodland and farmland, it is estimated that there are still about 33 million hectares of uncultivated lands suitable for agriculture, more than 6,000 million hectares of grazing land and more than 9,000 million hectares of barren hills, wasteland and woodland suitable for forest to be developed and utilized.
Energy resources　China has full range of conventional energy resources, it is one of the major energy resources countries in the world. Rich in coal resources and the coal tenure amounted to 901.453 billion tons by the end of 1990, which tops the list of world; Particular rich in waterpower resources, the academic reserves are 6.76 million kilowatts, which ranks first in the world; In addition to its proven oil reserves, it is very optimistic about the long-term reserves on land and sea in china.
Mineral resources　China is one of the few countries in the world which have many mineral species, widely distributed, large reserves and the majority of mineral resources can self-sufficiency. By the end of 1990, China’s proved mineral species which have some reserves had reached 148. Nonferrous metals have some advantages, the reserves of tungsten, antimony, tin, mercury, molybdenum, zinc, copper, bismuth, vanadium, titanium, rare earth, Lithium and others are among the largest in the world. The reserves of tungsten in china is more than three times than the other world’s total reserves, the reserves of rare earth accounts for more than half of the world’s total reserves, the reserves of antimony accounts for 44% of the world’s total reserves. The reserves of lead, iron, silver, manganese, nickel and others would have global significance. The reserves of iron and manganese rank three in the world, but lean ore more than rich ore; In addition, it has many associated minerals. Such as in the iron ore of Panzhihua, it associates with vanadium, titanium and nickel. In non-metallic mineral, pyrite and magnetite are among the largest in the world, phosphate ranks two and asbestos is the highest in the world.
Water resources　A preliminary estimate of china’s water resources is 27115 billion cubic meters. The mean annual runoffs of China’s river equal to 5.8% of the world’s total runoffs.
Forest Resource　China now has 124 million hectares of forest area, ranks eight in the world, but the forest coverage rate is only 12.98%; The reserves of forest is 9.141 billion cubic meters, ranks five in the world, and among which have a variety of excellent quality, high economic value species.
Biological resources　China is very rich in biological resources, only the species of seed plants reach 24,500, inferior to Malaysia and brazil, ranks three in the world. Among these various plants, the species of economic plants (one uses a single) reach 2,411, not only provide food, medicines, fibers and a variety of other industrial raw materials, and may protect and improve the natural conditions. The species of fish in aquatic resources are about 2,400, among which marine fishes account for three-fifths, the others are freshwater fishes. Additionally, there are crustaceans, shellfish and seaweed etc.


Infrastructure

Highway China is a vast country, and the highway extends in all directions. Highway volume continued to grow. By the end of 2005, the length of highway reached 1.9305 million km, and the road network structure has been further improved. In the length of total national highway, national road was 132,674 km, provincial road was 233,783 km, county road was 494,276 km, rural road was 981,430 km, and special road was 88,380 km, accounted for 6.9%, 12.1%, 25.6%, 50.8% and 4.6% of the total roadway length respective.
At the end of 2008, China’s main line system of national highway will be completed, then, Beijing, Shanghai and all municipalities, provincial capitals, regional capital and other big cities, will be connect with high-grade highways which main are expressways, and the total city linked up and connected over 200.
Railway By the end of 2003, China’s total railway length was 73,000 km, in which the length of double-track line more than 20,000 km, the length of the electrification was 18,000 km. China’s first cross-sea railway in Guangdong-Hainan Railway opened on January 7, 2003. The world’s highest-altitude Qinghai-Tibet railway, with a total distance of 1,142 km, was completed in 2006.
At present, China has become one of the largest traffic of completed railway in the world; Also, it was the fastest traffic growing and the highest utilization efficiency of transport equipment country.
Port Port berths continued to increase. By the end of 2005, the total ports in china have 35,242 berths for production, in which more than 10,000-ton berths have 1034.
The nation’s coastal ports have 4,298 berths for production, in which over 10,000-ton’s berths have 847; River ports have 30,944 berths for production, in which over 10,000-ton’s berths have 187. The 10,000-ton level berths of river ports locate in mainstream of the Yangtze River, tributary of the Yangtze River and thePearl River system, namely 179, 4 and 4 respective.
Civil Aviation China’s flight routes across the world’s continents, by the end of 2003, China’s civil aviation airports which have scheduled flights reached more than 140, the routes of scheduled flights reached more than 1,000. In which, international routes more than 160, connect more than 60 cities in more than 30 countries.
Telephone The total number of telephone users exceeded 800 million households in 2006, the total number of mobile phone users exceeded 400 million households. In 2006, the new added length of fiber-optic cables in china was 186,000 km, reached 4.259 million km; The new added length of fiber optic cables was 12.968 million core km, reached 88.934 million core km. The new added capacity of fixed long-distance telephone exchanges was 769,000 Road end, reached 14.485 million road end; The new added capacity of local exchanges was 30.665 million circuits, reached 502.626 million circuits, in which, the new added equipment capacity which access network was 23.414 million circuits, reached 234.622 million circuits. The new added capacity of mobile telephone switchboard was 128.181 million households, reached 610.599 million households.
Internet China Internet Network Information Center (CNNIC) released the 19th report on the development of China’s Internet, the report shows, up to December 31 2006, Internet users in mainland China has reached 137 million, in which broadband users already exceeded 100 million, reached 104 million, and mobile phone users has reached 17 million.
At the end of 2006, Chinese websites approximately had 843,000, bandwidth of exports was 256,696M, IPv4 addresses had 98 million, all of which continued to steadily grow. A large-capacity and high-speed basis transmission network which cover china, use cable as mainly, satellite and digital microwave secondarily has been built. In coastal and economically developed inland areas, cable has linked to township, district and multi-storied building, it has become the main technological means of information transmission.


China’s Absorption of Foreign Investment

China’s absorption of foreign investment is an important content of China’s fundamental principle of opening up to the outside world, and also an important component of Deng Xiaoping Theory, and is one of the great practices of building up socialist economy with Chinese characteristics. The Third Session of the Eleventh Central Committee of the Party in 1978 confirmed over again the ideological line of emancipating the mind and seeking truth from facts, and realized the historical transformation of key work for the entire Party. It also established the basic line of focusing on the central task of economic construction, and made up the great decision of reform and opening up to the outside world. The Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, was promulgated by the National People’s Congress in 1979, then the work of utilizing foreign capital as an important content of opening up to the outside world initiated as China’s fundamental principle. After twenty years of great efforts, the scale of absorbing foreign capital increasingly expanded as well as the level was increasingly upgraded when China’s law and managerial system on foreign investment have been gradually perfected. The achievements won the whole world’s attention, which effectively promoted the continuous, fast and healthy development of national economy.
The basic means of China’s absorption of foreign investments
The foreign investments are basically divided into direct investment and other means of investment. The direct investment, which is widely adopted, includes Sino-foreign joint ventures, joint exploitation and exclusively foreign-owned enterprises, foreign-funded share-holding companies and joint development. The other means of investment includes compensation trade and processing and assembling.
1. Sino-foreign joint ventures
Sino-foreign joint ventures are also known as share-holding corporations. They are formed in China with joint capitals by foreign companies, enterprises, other economic organizations and individuals with Chinese companies, enterprises, other economic organizations and individuals. The main feature is that the joint parties invest together, operate together, take risk according to the ratio of their capitals and take responsibility of losses and profits. The capitals from different parties are translated into the ratios of capitals, and in general the capital from foreign party should not be lower than 25%.
The Sino-foreign joint ventures are among the first forms of China’s absorption of foreign direct investment and they account for the biggest part. At present they are still a great part in the absorption of foreign investments.
2. Cooperative businesses
Cooperative business is also called contractual cooperation businesses. They are formed in China with joint capitals or terms of cooperation by foreign companies, enterprises, other economic organizations and individuals with Chinese companies, enterprises, other economic organizations and individuals. The rights and obligations of different parties are embedded in the contract. To establish a cooperative business, the foreign party, generally speaking, supplies all or most of the capital while Chinese party supplies land, factory buildings, and useful facilities, and also some supply a certain amount of capital, too.
3. Exclusively foreign-owned enterprises
Exclusively foreign-owned enterprises, which are totally invested by foreign party in China by foreign companies, enterprises, other economic organizations and individuals in accordance with laws of China. According to the law of foreign-funded enterprises, the establishment of foreign enterprises should benefit the development of our national economy and agree with at least one of the following criteria: the enterprises must adopt international advanced technology and facility; all or most of the products must be export-oriented. The foreign funded enterprises often take the form of limited liability.
4.Joint exploitation
Joint exploitation is the abbreviation of maritime and overland oil joint exploitation. It is a widely adopted measure of economic cooperation in the international natural resources field. The striking features are high risk, high investment and high reward. The joint development is often divided into three steps: exploitation, development and production. Compared with the other three means mentioned above, joint cooperation accounts for a small ratio.
5.Foreign-funded share-holding companies Foreign companies, enterprises, other economic organizations and individuals can form foreign funded share-holding companies in China with Chinese companies, enterprises, and other economic organizations. The total capital of the share-holding company is formed by equal shares，shareholders will take due responsibilities for the company according to shares purchased; company will take responsibilities for all its debts through all its assets and the Chinese and foreign shareholders will hold the shares of the company. Among them, the shares purchased and held by foreign investors account for more than 25% of the total registered capital of the company. Limited company can be founded either by means of starting-up or raising, and the limited liability company invested by the foreigners can also apply to turn into share-holding companies. The qualified enterprises can also apply to issue A & B share and list abroad.
6. New types of foreign investment While expanding areas and opening-up domestic market, China is also exploring and expanding actively its new types of utilizing foreign investment such as BOT, investment company and so on. Since multinational merger and acquisition has become the major type of international direct investment, Chinese government is now researching and enacting related policies so as to facilitate the foreigners to invest in China by means of merger and acquisition.
China’s policy direction of absorption of foreign investment
We should hold up high the flag of Deng Xiaoping Theory, follow the requirement of three representatives, center on the principles and policies of our nation’s economic and social development determined at the 16th National Congress of the Communist Party of China, adapt to the new situation of world economic development, stick to the principles of active and reasonable utilization of foreign capital, combine foreign capital absorption with economic structure adjustment and industrial upgrading promotion, the improvement of socialist market economy system, the reinforcement of enterprise competitiveness, the expansion of export and development of open economy, the vigorous exploitation of China’s western area, and promotion of regional economies’ harmonious development. Measures should be taken to further improve the soft environment for foreign investment, explore actively new methods for absorbing foreign capital, put emphasis on absorbing advanced technologies, modern management and special talents, and actively absorb foreign capital to invest in industries of new and advanced technologies, encourage multinational to set up district headquarters, research and procurement centers; speed up the development of supporting industries and push on the service trade field to open up to foreign countries step by step.
1. Energetically improve the political and legal environment for foreign investment, and to enhance legal administration level. According to our commissions for joining WTO and the requirement for our opening-up process, we will further improve the legal system of absorbing foreign investment, keep on the steadiness, consistency, predictability and feasibility of the policies and laws of foreign investment laws, try to create a united, steady, transparent and predictable environment for foreign investment. We will further simplify the examination and approval procedures for foreign investment and adopt a standardized examination and approval system; reinforce our sense of legality, try to be open, just and transparent, and establish an incorruptible, industrious, pragmatic and effective government, creating a good administrative environment for foreign investment.
2. Maintain and improve an open and fair market environment. We should combine this with the current work of rectifying and standardizing the order of market economy, prohibit firmly the improper collecting fees from foreign companies as well as improper inspection and fine of them. Measures should be taken to destroy local protectionism and industrial monopoly. We should also enhance the lawful measures to protect the intellectual property right and take strong actions against illegal piracy, therefore, establish an open, unified and fair market environment, further perfect the complaining mechanism of foreign-funded and protect the legal rights of foreign merchants according to law.
3. Further open the field of service industry. In accordance with China’s self-development and Commitment to the WTO, we will open this field vigorously and steadily and systematically, perfect rules and regulations for service industry and formulate a united and standard system for accession into the market of foreign investment service. We will encourage the import of modern service concepts and advanced management experiences, technologies and modes of modern market operation, improve structure of service industry in China.
4. Encourage foreign businessmen to invest in the new high-tech industry, the basic industry, and supporting industry. The ability of technology innovation and sustainable development directly reflect the competitiveness advantages of a country. We will continue to encourage foreign investors to introduce, develop and innovate technology and to invest in technology-intensive project, and projects with advanced technology and to guide in enterprise registered capital proportion limitation and funding condition. The relevant stipulations of setting pioneering investment enterprise should also be consummated in order to facilitate the conditions of setting and developing high-tech corporations. We should attract foreigners to invest in supporting industry and encourage the localization of new materials, push domestic small and medium-sized enterprises to enforce cooperation with foreign companies and introduce the advanced and applicable technology to match the large foreign-funded enterprises, thus to enter the production and sales network of multinational companies.
5. Attract actively more multinational companies to invest in China. Multinational companies as leading force of today’s world economy. We will pay more attention to improve the relevant policies to attract multinationals to invest in China, establish the local headquarters and set up cross-country procurement centers. Using the experience and methods of merger and acquisition of other countries and taking the economical system with China’s characteristics and realities of into consideration, we should speed up the step to draft and improve the practical policy and stipulations of investment through merger and acquisition, further revise the relevant stipulations of the foreign-invested share-holding companies, push the formulation and perfecting of BOT and special permission transfer investment methods, the various stipulations for foreign-funded enterprise’s listing domestically and abroad.
6. Further promote foreign invest in the central and western regions. Vast areas in these regions are rich in resources for farming and stock raising, mineral resources and tourist resources. With a large population and a market of great potential labor forces, other key elements for production are relatively inexpensive with the steady progress and western development strategy, such facilities as transportation, communication and construction has impressively improved. Because of the improvement of investment environment and ecological development and emergence of potential for the development of specialty economy, foreign businessmen who invest in these regions are facing brand-new opportunities and great development space.


Sectors

Since the beginning of reform and opening up, China’s economy has gained rapid development. In 2005, the GDP reached 18.3 trillion yuan, 10.2% increase based on comparable price. Thereinto, the added value of the primary industry was 2.3 trillion yuan with 5.2% growth year-on-year, the added value of the secondary industry was 8.7 trillion yuan with 11.7% growth year-on-year, the added value of the tertiary industry was 7.3 trillion yuan with 10% growth year-on-year. Currently, China’s industrial structure has been optimizing constantly, the proportion of the primary industry, the secondary industry and the tertiary industry in national economy was 12.6:47.5:39.9, compared to 27.9:47.9:24.2 in the beginning of opening up of 1978.
As to the foreign capital utilization, there were 44001 contractual foreign direct investment projects in all industry, the amount of contractual foreign capital utilization was 189 billion dollars, the amount of foreign capital actually utilization was 60.3 billion dollars. Of which, there were 1058 projects, 3.84 billion dollars of contractual foreign capital utilization, 780 million dollars of foreign capital actually utilization in the primary industry, accounting for 2.4%, 2.0% and 1.2% of total respectively. There were 30027 projects, 134.4 billion dollars of contractual foreign capital utilization, 44.7 billion dollars of foreign capital actually utilization in the secondary industry, accounting for 68.2%, 71.1% and 74.1% of total respectively. There were 12916 projects, 50.7 billion dollars of contractual foreign capital utilization, 14.9 billion dollars of foreign capital actually utilization in tertiary industry, accounting for 29.4%, 26.9% and 24.7% of total respectively.