Tuesday, 19 October 2010

by Ken Davies, Columbia FDI Profiles, October 18, 2010

After opening its doors to foreign trade and investment in 1978, China has become the largest recipient of inward foreign direct investment (IFDI) among developing and transition economies. The early policy of investment attraction by means of fiscal incentives and special economic zones has been relaxed now that many - though still not all - operating environment deficiencies have been effectively addressed and strong domestic enterprises have developed. While China remains the developing world’s favorite investment destination, the government is adopting a more selective approach that may result in slower IFDI growth. Although the global crisis reduced FDI inflows to China, this impact was lower than in many other FDI destinations, and flows have recovered considerably.

by Ken Davies, Columbia FDI Profiles, October 18, 2010

Since 2000, China’s outward foreign direct investment (OFDI) has grown at an accelerating rate as a result of a switch in government policy to strong encouragement of Chinese enterprises to “go global.” The bulk of this investment has been into the primary and tertiary sectors, with relatively little so far going into manufacturing. Most has gone to Asia, but Chinese investment is now spreading throughout the world. The precise geographical distribution is veiled, as much of it passes through tax havens. The Government has been slow to tackle administrative obstacles to Chinese companies wishing to invest abroad, but has recently begun to relax them. The global crisis has presented opportunities for Chinese multinationals, which were less seriously affected than their counterparts in the developed world, to raise their stake in the world economy.
by Karl P. Sauvant and Ken Davies, Columbia FDI Perspectives No. 30, October 18, 2010

A revaluation of the Chinese yuan would affect the country’s inward and outward FDI, not just its exports and imports. The impact on FDI inflows to China would be both positive and negative. On the other hand, revaluation is likely to provide a strong boost to overseas investments by China’s multinationals, which have been rising rapidly in recent years. Suspicions that China’s outward FDI is politically motivated are not so far borne out by systematic evidence. The rest of the world should learn how to benefit from this investment, not try to raise protectionist barriers against it.  

Wednesday, 14 July 2010

Dagong Global Credit Rating Co. Ltd. takes a different view

Dagong Global Credit Ratings Co. Ltd. is causing a stir.


The clearest headline is in the Daily Telegraph: "Chinese rating agency strips Western nations of AAA status".

Dagong is clearly taking advantage of the lack of public confidence in rating agencies, for reasons adduced, for example, in the July 2008 report of the Securities and Exchange Commission. That report focused on the agencies' role in the subprime mortgage crisis, but the lack of transparency and of robust internal auditing procedures that were that report's main findings may equally affect sovereign debt ratings.

Dagong differs from the other rating agencies in that it takes more account of factors such as the size of a country's foreign exchange reserves (China has USD2.5 trillion right now). The difference is summarised in a neat table in the Financial Times Alphaville blog:

Dagong has posted on its English language website the full PDF text of its Sovereign Credit Rating Report of 50 Countries in 2010 released on 11 July 2010,

Dagong's websites: Chinese, English.

Friday, 11 June 2010

What the recent FDI announcements mean and what needs to be done

Look below.

Scroll down to the State Council Opinions on Further Utilising Foreign Capital and the NDRC clarification posted just above it. The good news is that these documents herald further incremental liberalisation of the foreign investment environment in China. The not-so-good news is that they don't yet do much more. The proof of the pudding, as in much of Chinese business law and policy, is in the implementing regulations which may be dribbled out in the months to come.

Thursday, 10 June 2010

Further elaboration of the State Council's April "Opinions" on foreign investment

Circular of the National Development and Reform Commission on Doing a Good Job in Delegating the Power to Approve Foreign-invested Projects
Fa Gai Wai Zi [2010] No.914

Development and reform commissions of provinces, autonomous region, municipalities directly under the Central Government, separately planning cities, sub-provincial cities and Xinjiang Production and Construction Corp,
In light of the Some Opinions of the State Council on Doing a Good Job in Utilization of Foreign Investment (Guo Fa [2010] No.9), the issues relevant to delegation of the power to approve foreign-invested projects are hereby promulgated as follows:

China's policy towards foreign investment takes an incremental step forward

Several Opinions of the State Council on Further
Utilizing Foreign Capital

Guo Fa [2010] No. 9

People’s governments of provinces, autonomous areas and municipalities directly under the
central government, ministries and commissions and departments directly under the State Council:
Utilizing foreign capital is the important content in China’s basic state policy of opening up to
the outside world. China has positively been attracting foreign investment and promoted industrial
upgrading and technical progress since the opening up, with foreign-invested enterprises being the
important component of the national economy. At present, Chinese advantage over utilizing
foreign capital remains obvious. For the purpose of raising the quality and level of utilizing
foreign capital and better giving full play to utilizing foreign capital in boosting scientific
innovation, industrial upgrading and regional coordinated and balanced development, the
following opinions are hereby put forward:

Friday, 23 April 2010

Email hijacking: nobody is safe

The Chinability webmaster today had his personal email address hijacked and used to advertise www.eastshopcn.com. This domain name is registered to a certain Shao Yun from an organisation listed as Shao Yun Long of MaoMingShi, QinYuanLu, ZhenHuaXiaoQu 332 Shi in Guangzhou, postcode 525011. The telephone and fax number is +86-02977-427020, the email address is eastshopcncom@hotmail.com.

I rang the phone number, but nobody answered.

The hostmasters for the site and related sites are at hostmaster@hichina.com and hostmaster@hinet.net.

The host's IP number is Some other IP numbers appear on this chart showing links from eastshop.cn.
Since I regularly update and scan with several trusted brands of antivirus software, this intrusion was unexpected. It suggests that nobody is safe from this kind of attack.

It is not clear if this is a simple commercial hijacking or if there is another purpose behind it.

Be eternally vigilant...

Saturday, 10 April 2010

What is the OECD doing with China?

Colour brochure downloadable as a PDF

OECD Secretary-General Angel Gurría's remarks at the 2010 China Development Forum

The transformation of China’s growth pattern in the new global context
Monday, 22 March 2010
Beijing, People’s Republic of China

Chairman Zhang Ping, Distinguished guests, Ladies and Gentlemen,

It is a great honour to participate once again in the China Development Forum. Our topic for discussion is obviously of great consequence for China and the whole world.

China´s long term growth performance

China’s economy has outperformed all expectations, both over the long haul and, more recently, during the global Great Recession. China bounced back promptly thanks to the effective monetary and fiscal stimulus. Chinese demand is helping to support the global recovery. Actually, one third of the world’s growth this year will be attributable to China’s double-digit expansion, which will ease slightly next year, as the gradual withdrawal of monetary and fiscal stimulus outweighs the impact of stronger external demand.

The strong growth performance has been accompanied by dramatic improvements in living standards. In recent years, the growth of household consumption has been amongst the most rapid in the world.

Wednesday, 31 March 2010

OECD Investment Policy Reviews of China

Check out the three investment policy reviews of China published by the OECD.

The first one, published in 2002, is general, covering many different aspects of policies to encourage investment. An overview of the whole book is provided in Chapter 1, which you can download as a PDF file.

The next one, which came out in 2006, focuses on the Chinese government's policies on cross-border mergers and acquisitions (M&A).

The most recent was published in 2008. This provides an update on laws and policies since 2006, then looks for the first time at China's policies on outward direct investment, as the basis for examining what the Chinese government is doing to improve the conduct of companies in China and Chinese companies investing overseas, largely in response to the government call to them to "go out" (走出去).

If you read Chinese, you can download a copy of this latest Review in Chinese as a single PDF file.

FDI's roller coaster ride

Economic statistics for the individual months of January and February are practically useless for making statements about trends based on year-on-year comparisons in China.

This is because the Chinese lunar calendar has thirteen months and so the New Year can fall in January or February. In 2009 the first day of the Chinese New Year was on 26 January, while in 2010 it fell on 14 February.

Since the New Year spring festival holiday, now a “golden week”, is China’s most important traditional holiday, involving millions of people taking time off work to return to their home towns and villages, national output is lower in the month in which it falls.

So in January 2010 most economic statistics were bound to show marked rises and in February 2010 they were destined to show similarly strong slowdowns or falls, almost regardless of boom or recession.

In 2011, when Chinese New Year is again in February, this effect will be less marked. This will not recur, though, until 2019.