China into New Period of Using Foreign Capital

Since the reform and opening up, China has become the most attractive place for the foreign investors. A lot of foreign capital came into China and contributed a lot to China’s economic development. Now, China is trying to change its structure of using these foreign investments.

The Chinese Ministry of Commerce said on September 21 that the amount of actually utilized foreign direct investment (FDI) in China in August was 7.499 billion US dollars, up 7% year on year. This was the first month in which the FDI saw a year-on-year increase in the year of 2009.

The increase is mainly attributed to the excellent performance of the manufacturing industry. In August, the foreign investors set up new 716 manufacturing enterprises in China. The number was 5.42% smaller than last August, but the amount of actually utilized foreign capital was 4.288 billion US dollars, up 11.72% from last year. Comparatively, the service industry saw the year-on-year decrease both in the number of enterprises and in the amount of actually utilized foreign capital.

In truth, in June China’s FDI didn’t fall at the same high speed as in the previous months. However, this betterment trend only lasted for one month. In July the amount of FDI once again saw the greatest fall after the breakout of international financial crisis, which was 35.71%. Therefore, the data in August was really out of expectation.

But the experts said that the Chinese people should not only focus on the improvement. They must find the problems behind the joyful data and work out solutions for them.

Since the reform and opening up, China has gradually become the new world plant. During this process, many foreign investors, attracted by the cheap labor force and the maturing investment environment, strived to be the first to put their money in China, especially in the manufacturing industry. Once upon a time, foreign-funded companies can be seen in nearly every field of manufacturing industry. The contribution of those foreign-funded companies to the development of Chinese manufacturing industry can not be denied.

Now, the situation has been changed. Due to the impact of the financial crisis and the other factors, many fields of manufacturing industry in China, including heavy industry and new energy, are struggling to fight against the excessive production. Meanwhile, the economy depends on the manufacturing industry too much, which has also caused some problems, like the environment pollution, huge consumption of the energy and difficulties in industrial upgrade, etc. Therefore, people felt more anxious since there was still a lot of foreign capital entering into the manufacturing industry in August.

Of course the foreign capital plays an important role in the Chinese economy. The Chinese government will also continue to actively utilize the foreign capital for a long time. However, the utilization of foreign capital in China has already entered into a new period, in which the focus will be shifted from the amount of foreign capital to its quality. It is an urgent task for China to change the situation that the industries invested by the foreign investors are not high in level and the investment structure is not reasonable. Therefore, China must make clear of the value orientation in utilizing the foreign capital, which is necessary for the healthy and long-term development of the Chinese economy.

On the one hand, manufacturing is still the pillar industry of the Chinese economy, as well as the industry in which Chinese enterprises have advantages in the international competition. Therefore, innovation must be seen in utilizing the foreign capital; the laws and regulations must be consummated. The main purpose is to make use of the foreign capital to promote the upgrade of the manufacturing industry and the other traditional industries, as well as to improve the core competitive power of the Chinese enterprises.

On the other hand, the government should actively lead the foreign investors to put their money into the new fields, especially the high-tech industry, high value-added industry and modern service industry. These industries urgently demand fast development. The high-tech industry is featured with the large amount of investment, long period and fast update of technology. To lead the foreign capital into the new fields can not only help the Chinese enterprises cultivate new self innovation abilities, but also help this country in fostering new economic growth points.

It can be forecasted that the Chinese government will still encourage the foreigners to add investments in China in the future. But the guiding policies will be changed, to realize the purpose of optimizing the structure of foreign investment and the national economy.