Efficient use of FDI under dual circulation strategy

2021-8-27 14:47:30

The Business Development Plan for the 14th Five-Year Plan Period, issued recently by the Ministry of Commerce of China (MOFCOM), lays stress on the effective use of FDI which will underpin the goals identified in the Plan and put us on track for a new development paradigm and high-quality development in all aspects.

In the first half of this year as the pandemic dragged on around the globe, the FDI, in actual use, surged significantly in China, hitting a record high for the same period. FDI projects - many were technology-intense and large-scale - were supported widely across the country. Twenty provinces registered double-digit growth; among them, Shandong, Zhejiang, Shanghai, Jiangsu, Guangdong and Beijing were in the top set with growth rates of 61.9%, 36.4%, 35.6%, 26.7%, 20.6% and 13.5%, respectively.

Behind this robust performance was China leading the recovery and growth of the global economy, with substantial economic potential and vitality unlocked upon effective containment of the pandemic. The promising economic outlook and optimized business environment made China an attractive destination for foreign capital, and this will be all the more so as this super huge market exhibits a higher demand for investment and consumption in the future.

While the multiple positive factors pull investors to China, we still face challenges in the effective use of FDI. The externalities include intense international competition over FDI, economic downward pressure on major FDI sources, aggravating international tension and other risks. Also, the notable regional gaps in the use of FDI and the fact that foreign investors are not effectively incorporated and linked to China's industrial chain constitute part of the internal picture. Stabilizing the amount of high-quality FDI will be one of our priorities in the years to come. To that end, we must have an accurate assessment on the changing international and domestic environments, leverage international and domestic markets and resources, and make the most efficient use of FDI under the "dual circulation" strategy in which domestic economic cycle plays a leading role while international economic cycle remains its extension and supplement.

We need to expand market access, implement the updated negative list, and roll out appropriate measures to stabilize FDI. To be specific, we must gradually lift FDI restrictions in the telecommunication sector while removing all access limitations on foreign investors in industries not included in the negative list, further liberalize general manufacturing, and open the way for foreign funds to flow into high-end manufacturing. We must adopt preferential FDI policies, and direct foreign capital into advanced manufacturing, high-tech, energy conservation and emerging industries. We must also help lower the threshold for foreign-funded research centers to enjoy the benefits of supportive policies and encourage foreign investors to increase innovation spending in China. In addition, efforts should be made to promote servitization in the domestic manufacturing sector, improve the supply capacity of producer services and encourage competent Chinese companies to strengthen their global presence. We must keep improving our business environment, and allow development zones, national-level new districts and other major platforms to play the role as local industrial clusters and innovation bases. We must enforce the catalog of encouraged industries for foreign investment and other established policies, and at the same time, build policy buffers in response to the common concerns of foreign investors to strengthen policy support and roll out new measures in due course to stabilize FDI.

FDI sources need to be diversified to better protect the industrial chain. The global industrial and supply chains are undergoing fast changes amidst the still-raging pandemic, making it imperative for us to get more bilateral and multilateral trade and investment agreements off the ground. To be specific, we must help RCEP and EU – China Comprehensive Agreement on Investment (CAI) to go from paper to reality, implement China-Japan-ROK Free Trade Agreement, and facilitate early FTA talks between China and the UK. We must also diversify FDI sources to secure international cooperation along the industrial chain, attracting foreign trade from emerging economies such as ASEAN and the Americas while stabilizing FDI from main sources.

Local governments should develop new ways of attracting business and investment, and further integrate foreign investors into the local industrial chain. The governments should prioritize FDI projects that can best engage with the local industrial network and drive innovations, step up efforts to build local support system, and create an environment that is attractive to high-quality foreign-funded projects. A scientific system is needed to evaluate project quality and filter out high input and low output or shell projects. High-quality projects shall enjoy preferential policies based on differentiated water and electricity tariffs, etc. The local governments should be encouraged to flexibly adopt new approaches to attracting high-quality FDI through the force of, for example, domestic capital, foreign capital or businesses, to connect with international resources and integrate into the international economic flow.

(Source: CCPIT/

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