How to Invest in China 50 Questions and Answers

BRIEF INTRODUCTION TO CHINA'S UTILIZATION OF FOREIGN FUNDS

1. How does China utilize foreign funds?
　　Since the initiation of reform and opening policies in China in 1979, the utilization of foreign funds has become an important part of China's opening to the outside world. This includes borrowing money from foreign countries, direct foreign investment, and other forms of investment. Borrowing money from foreign countries mainly includes loans from foreign govern-ments and international financial organizations, using foreign banks' export credit and loans from foreign commercial banks, and issuing bonds and debentures and stocks in the international market to acquire foreign funds. Direct foreign investment mainly takes the form of establishing foreign-invested enterprises or Chinese-foreign cooperative development of re-sources. Other forms of foreign investment include international leasing, compensatory trade, and pro-cessing and assembling.

2. What is the status of China's utilization of foreign funds since 1979?
　　Between 1979 and 1997 China used US$ 347.94 billion in foreign funds, including US$ 220.18 billion in direct foreign investment. Since 1992 in particular, China's utilization of foreign funds has developed rap-idly, ranking China first in the use of foreign funds among developing countries, and second overall in the world.
　　Through the utilization of foreign funds, China has been able to make up its shortage of domestic con-struction capital, strengthen the exploitation of energy resources and the construction of transport and com-munications facilities and the raw and semi-finished materials industry, introduce advanced technology and equipment, and enhance its capability of earning for-eign exchange through exports. In turn, foreign inves-tors have gained a part of the Chinese market and have earned lawful profits.

3. What were the characteristics of China's utilization of direct foreign investment in 1997?
　　In 1997, China approved 20,780 direct foreign investment projects with a contracted value of US$ 48.7 billion, of which US$ 45.3 billion has been utilized, an increase of 8.8 percent over 1996.
　　In 1997 the characteristics of China's utilization of direct foreign investment were as follows: (1) The tendency of dramatic decline in the number of newly approved projects slowed. The number of newly ap-proved projects in 1996 declined by 33.73 percent compared to 1995, and in 1997 by only 15.39 percent compared to 1996; (2) The amount of utilized foreign funds continued to increase and reached an all-time high; (3) The scale of foreign investment was reduced. In 1997 the average amount of investment in newly approved projects was US$ 2.344 million, declining 27.6 percent compared to the US$ 3.24 million in 1996, and the approved projects trended to be small-er; (4) The investment structure was improved. The average amount invested in projects in the Central and Western Regions was US$ 1.9094 million, a 1.03 percent increase over 1996, and near the national average. Agriculture, forestry, animal husbandry and fishery projects accounted for 3.8 percent of the total projects, and communications, transport, post and telecommunications projects, 1.2 percent, both an increase over 1996. Real estate projects constituted 4 percent, continuing to decline. (In 1996, it was 7.98 percent of the total.)

4. What does it mean when we say that an omni-directional, multi-level and wide-range pattern of opening has been formed in China?
　　By the end of 1997, there were more than 170 countries and regions with investments in China, in-cluding both developed and developing countries, cov-ering most of China's industries. This signifies that an omni-directional, multi-level and wide-range pattern of opening has been formed in China. Although Hong Kong remains the dominant source of China's capital absorption, its percentage has declined, and the per-centage of investment from Europe has risen.

5. How is the overall investment environment in China?
　　At present, China is building, step by step, a socialist market economic system. With a stable polit-ical situation, broad market prospects, enormous potential for scientific. technological and economic devel-opmenl continuallv improving infrastructure. a stable currencv, foreign exchange reserves ranking close to first in the world, and low general cost, China has an excellent investment environment and has the condi-tions to continue to be an attractive nation for foreign investment.

6. How are prospects for investment in China?
　　Over the past 20 years of reform and opening, profound and enormous changes have taken place in China. In 1997, China's total export and import vol-ume reached US$ 325.06 billion, an increase of 12.1 percent over the previous year, and foreign exchange reserves were near US$140 billion. Currently, China's economv is maintaining a sustained, rapid and sound development, with a favorable trend toward "high growth, low inflation" which has occurred during the first two years of the Ninth Five-Year Plan (19962000). The prosperity of China's economv is an important force for promoting the stability and devel-opment of Asia and the world, and provides broad opportunities for other countries to invest in and cooperate with China in finance and trade. In the last three years of this century, the total amount of invest-ment in China will exceed US$1.2 trillion, over 800 billion of which will go to infrastructure construction. Total import commodities value will be near US$ 600 billion, and a considerable quantity of capital, technol-ogies and equipment will be brought in from abroad for joint ventures and cooperation. In order to create better market conditions and a sound environment in terms of policy for international economic and trade cooperation, the Chinese government slashed import tariff rates by a large margin in 1996 and 1997-by 34.3 percent and 26 percent respectively. Currently, overall tariff has been lowered to 17 percent and will be even further lowered to the average level of devel-oping countries by the end of this century. All of this will benefit foreign businesses which invest and initiate enterprises in China.

7. What is a foreign-invested enterprise?
　　A foreign-invested enterprise refers to those enter-prises invested in by foreign businesses, individuals and other economic entities through various methods, all established in accordance with Chinese laws and with independent civil responsibility.

8. What are the various types of foreign-invested enterprises?
　　Foreign-invested enterprises include Sino-foreign joint ventures, Sino-foreign cooperative enterprises, and foreign enterprises (also called solely foreign-funded enterprises). These three kinds of enterprises differ in the forms of investment, distribution, risk, return on investment, holding responsibilities, and clearing accounts. Foreign-invested enterprises, what-ever investment forms they use, all have some com-mon characteristics, that is, they are established in accordance with the conditions and procedures stipu-lated by Chinese laws, they can qualify as legal entities and hold civil responsibility independently after being registered, and their enterprises have capital from other countries or regions.
The Company Law of the People's Republic of China, implemented as of July 1, 1994, provides that Sino-foreign joint ventures and foreign-funded enter-prises take responsibility as limited liability companies, that Sino-foreign cooperative enterprises, if they meet the provisions of the Company Law, may be registered as limited liability companies, or as a non-corporate enterprise, and that if a limited liability company is to be established, at least 25 percent of the shares issued by the company have to be subscribed for by the company itself.
The legal establishment of foreign-invested en-terprises is based on: the Law of the People's Re-public of China on Chinese-Foreign Joint Ventures, 1990; Regulations for Implementation of the Law of the People's Republic of China on Chinese-Foreign Joint Ventures, 1987; the Law of the Peo-ple's Republic of China on Chinese-Foreign Cooper-ative Enterprises, 1988; Bylaws for Implementation of the Law of the People's Republic of China on Chinese-Foreign Cooperative Enterprises, 1995; the Law of the People's Republic of China on Foreign Enterprises, 1986; and Bylaws for Implementation of the Law of the People's Republic of China on Foreign Enterprises, 1990.

9. How is direct foreign investment absorbed regionally in China?
　　Much of the foreign investment in China goes into Eastern China, Central China less, and Western China least. In recent years the percentage of foreign funds going into Central and Western China has risen; however, the backwardness of these two regions in attracting foreign capital has not substantially changed. By the end of September 1997, the 12 coastal provinces, municipalities and autonomous re-gions had approved the establishment of 244,053 foreign-invested enterprises, making up 82.1 percent of the nation's total; the nine provinces and autono-mous regions in Central China had approved 38,324, or 12.9 percent of the nation's total; and the nine provinces and autonomous regions in Western China had approved 14,857, or 5 percent of the nation's total. In the order of the amount of foreign funds actually used, the five provinces and municipalities which have absorbed the most direct foreign invest-ment are Guangdong Province, Jiangsu Province, Shanghai Municipality, Fujian Province and Shandong Province.

10. What is the current situation of world-famous transnational companies investment in China?
　　At present, more than 300 of the 500 largest transnational companies in the world have invested in China. During the period of the Eighth Five-Year Plan (1991-1995) the investment of world-famous transna-tional companies reached US$ 7.7 billion in contract-ed capital, and that figure is still on the increase. Not a few transnational companies have placed their over-seas investment emphasis on China and made their own investment strategies along this line. Some of them have moved or are considering moving their regional headquarters to China.