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Liu Ying: Is China`s Investment Environment Deteriorating?


By Liu Ying    Source: Beijing Review    Published: 2017-3-30

Cao Dewang, President of China`s auto-glass titan Fuyao Group, increased investment in the United States in 2016 and later made remarks about China`s manufacturing industry being overtaxed, sparking a month-long controversy on China`s tax system. In recent years, the media has often reported on foreign businesses that have withdrawn from or reduced their investment in China. Rumor has it that China`s investment environment is deteriorating. A detailed analysis of the statistics in this year`s Government Work Report will show us whether China`s investment environment has really deteriorated or not.




Let the figures speak

To start with, China`s global rank in foreign investment and its business environment has soared. Statistics show that China has been second only to the U.S. in terms of inbound and outbound investments for many years. Over the last decade, foreign investment in China has seen a steady increase year on year. According to data from the Ministry of Commerce, in 2008 China attracted $92.4 billion of foreign investment, a growth rate of 23.6 percent from 2007. In 2015, this figure jumped to $126.3 billion, a 36.8-percent increase from 2008.

Over the past decade, China`s global rank in attracting foreign investment has been increasing. As China`s economy grows and its upgrading quickens, Chinese enterprises have been accelerating the pace of their expansion abroad, with increasing overseas investment, including greenfield investment, mergers and acquisitions. Most of this is taking place in the United States and Europe. In 2016, China`s outbound direct investment reached an unprecedented volume of $170.1 billion, a year-on-year growth of 44.1 percent. China has become more and more attractive for foreign investment, while the volume of Chinese outbound investment has increased markedly.

Foreign investors view a potential destination for investment in a comprehensive manner. Cost is not the only thing that is taken into consideration. The business environment and the dimensions of the market, as well as company strategy and its position within an industry are all factors that a foreign investor considers when choosing investment destinations. China`s enormous market and complete industry chains make the country a place that no transnational investor can ignore.

In addition, China`s massive tax cuts last year ranked top in the world. In 2016, a pilot program for value-added tax (VAT) to replace business tax was advanced across the board, resulting in companies making total tax savings of 570 billion yuan ($82.63 billion). The program not only helped to reduce companies` tax burdens, but also promoted industrial transformation and upgrading.

The main tasks of the Chinese Government in 2017 include lowering corporate costs and improving weak links to deepen supply-side structural reform. The Government Work Report stated that China will further reduce tax burdens on enterprises by around 350 billion yuan ($50.8 billion) and lessen other corporate-related fees by around 200 billion yuan ($29 billion). This year`s goal carries huge implications and will bring actual benefits for market entities, including foreign companies in China.

Moreover, the report also stressed that governments at all levels should continue to cut fiscal expenditure. Central Government departments should take the lead by reducing no less than 5 percent of their general expenditures. No increase in spending on official overseas visits, official vehicles, or official hospitality is permitted. "We will squeeze out more funds to cover cuts in taxes and fees. We will keep government spending low and enrich our people," read the report.



Bolstering reforms

China will facilitate its reform and opening up and boost vitality of businesses. To balance the government-market relationship—the pivotal issue in economic structural reform—China will continue reforms to streamline administration, delegate powers and improve regulation and services.

In 2016, this administration`s target of cutting the number of items requiring government review by a third had been achieved ahead of schedule. On that basis, the government canceled the requirement on a further 165 items for review by State Council departments and authorized local governments. It also overhauled and standardized 192 intermediary service items for government review as well as 220 approval and accreditation items for professional qualifications.

This year, the report stated that China will continue to transform government functions in order to enable the market to play a decisive role in resource allocation and to give better play to the role of the government. China must deepen reform by continuing to pursue painful self-adjustments that overcome all odds. China will implement a list-based management system, formulate lists of the powers and responsibilities of the departments under the State Council, and expand the piloting of granting market access on the basis of a negative list.

In the Government Work Report, Premier Li Keqiang emphasized three key points. All industries and sectors for which entry is not explicitly prohibited by laws or regulations should be open to different types of market entities; all industries and sectors that are open to overseas investment should be open to Chinese private capital; and all unjustified activities that impede fair market competition should be stopped. The report also pointed out that China will move faster to develop a new government-business relationship. It stated that China will ensure equal rights, equal opportunities, and fair rules and further expand market access for the non-public sector.

Belt and Road Initiative

China is promoting the Silk Road Economic Belt and 21st-Century Maritime Silk Road Initiative (the Belt and Road Initiative) to build an international community with shared destiny. To achieve the goal, China is working with more than 100 countries, following the principles of wide consultations, joint contributions and shared benefits, to strengthen infrastructure construction and international industrial capacity cooperation, and enhance the industrialization of underdeveloped countries. In the information age, as an inevitable result of the international division of labor, industrial chains, value chains and supply chains are global and international economic and trade cooperation is drawing increasingly close. Thus, the global distribution of enterprises is also inevitable.

This year`s report pointed out that in the process of promoting the Belt and Road Initiative, China will place more focus on building economic corridors and maritime cooperation hubs, as well as strengthening international industrial capacity cooperation and cooperation in education, culture and tourism with other countries along the Belt and Road routes. Thus, both foreign and domestic firms can make their own independent choices to invest in low-cost countries, like those in Southeast Asia.

Nowadays, as anti-globalization and trade protectionism have sprung up, this initiative places more focus on two-way investment and the real economy, and is committed to making full use of resources both in China and abroad to jointly develop the international market. It`s also a real embodiment of a community of common destiny, common responsibility and common interests. In addition, by improving the standing of countries involved in the global industrial chain and giving full play to their advantages, the Belt and Road Initiative promotes economic connectivity and common prosperity.

The author is a research fellow from Chongyang Institute for Financial Studies of Renmin University of China.

Key Words: China   economy   investment   Liu Ying  

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