Affiliated
with
 |
|||||
|
"FOREIGN
INVESTMENT IN CHINA - POST WTO"
SPEECH BY MS. HU SHENGTAO - MOFTEC 30 MAY 2002 - CHINA WORLD HOTEL The event, "In-House Congress Beijing
2002" organized by Pacific Business Press Ltd, Gilbert Van Kerckhove acted as chairperson during the speech of Ms. Hu and the panel discussion. About the Speaker
Besides this she is also responsible for the negotiations of Sino-foreign investment treaties. The counterparts she has negotiated with are, just to name a few, Germany, The Netherlands, Finland, Bosnia and Herzegovina, Russia, Canada and Tunisia. She has written a number of articles, including the "Review on the Constitution of Foreign Investment in China", "FDI and the Anti-circumvention Measures" and Competition Policy and the Trade Liberalization". Furthermore, she is also the co-author of the International Commercial Law, a Chinese-English Dictionary of Law. Ms. Hu speaks English fluently Our Comments Figures cited by Ms. Hu about the huge task to review the existing laws and regulations can be compared to other official figures just released by MOFTEC: 2,300 were "revised", 830 were "abolished" and 325 "new" laws and regulations were added. The Beijing Municipality "cleaned up 587 laws and regulations". The different figures are typical for China where it is often difficult to have exact information. But it clearly shows the enormous tasks the legal system faces, in terms of reform but also in trying to improve legal education. The Central Government had set a goal of 300,000 lawyers but the present total is said to be 120,000 only. Compare that to the figure of 180,000 judges ...
*Pictures are courtesy of Pacific Business Press Ltd. Speech Ladies and gentlemen, 10 November 2001 is a red letter day for China. It is on that day, with the pass of the legal instruments on China's accession to the WTO at the Doha Ministerial Conference, China finally entered the WTO as a result of 15 years of hard negations with great efforts. China's entry into the WTO is a historically significant event. It will exert broad and far-reaching influence on every aspect of Chinese social and economic development. As a matter of fact, since its reform and opening-up in late 1970's, Chinese social and economic development has been in the process of constant adjustments and changes. In virtue of the undertakings and obligations assumed by Chinese government upon the accession to the WTO, the process in no doubt becomes more urgent, bright and clear. As far as the China's utilization of foreign investment is concerned, the investment climate has been and surely will be further improved with China's entry into the WTO. The Chinese government is endeavoring to creating a more stable, transparent and predicable legal environment, administrative environment and market environment for the economic cooperation between Chinese and foreign investors. There is tremendous workload for the Chinese government to improve the legal climate. It shall be achieved, on one hand, according to the WTO basic principles and its relevant rules. The basic principles of non-discrimination, transparency and trade liberalization call for Chinese foreign investment legislation to be reformed in a rather fundamental way. Meanwhile, the specific rules of relevant agreements under the WTO, such as TRIMS, GATS and TRIPS bring about very definite challenges to the relating provisions of the existing legislation. On the other hand, the contribution made by foreign investment to Chinese national economic development should be seriously taken into consideration. The utilization of foreign investment shall follow the demand of so-called "four combinations". That is utilizing foreign investment in combination with the adjustment of economic structure and the industry escalation and the efficiency enhancement, in combination with the establishment and improvement of socialist market economy system and the increase of international competition power, in combination with the export expansion and the development of open economy and in combination with the Western Areas development. Presently, the Chinese government is taking special efforts sorting out all the laws, regulations and other regulating documents concerning foreign trade and economic cooperation in order to clear away those not compliable with the WTO rules. To date, more than 2200 pieces of legislation have been checked up. Take the example of MOFTEC is concerned, 450 are to be maintained and about 600 to be abrogated. The MOFTEC expects to finish clearing up the relevant legislation by the end of this June. Therefore, more attention shall be paid to prompt the local MOFTEC to accelerate sorting out the foreign-related local legislation. Following the requirements of the TRIMS under the WTO, the Chinese legislator has revised the Chinese-foreign Equity Joint Ventures Law and its Implementing Regulations, the Chinese-foreign Contractual Joint Ventures Law, the Wholly Foreign-owned Enterprises Law and its Implementing Rules. These underlying laws and regulations directly govern the establishment and management of the foreign-invested enterprises. The amendments mean to get rid of the contents concerning the requirements of balance of foreign exchange payments, local content, export performance as well as the report of the production plans. The former three requirements are considered as to limit or distort the normal trade as forbidden by the TRIMS. The last item is no longer appropriate and necessary because of the establishment of market economy system. The GATS is one of the most significantly creative achievements made by the Uruguay Round of WTO negations. Being a member to the WTO, China is seriously carrying out its undertakings under GATS. Chinese government has promulgated the certain administrative regulations and departmental rules for specific sectors in the service trade areas. Just to name a few, The Administration Provisions for Foreign-invested Telecommunications Enterprises, the Administration Regulations for Foreign-invested Insurance Companies, the Administration Regulations for Foreign-invested Financial Institutions, and the Administration Regulations for Representative Offices of Foreign Law Firms in China. Besides, some are in the process of drafting or asking for public opinions for the finalization, for example, the Provisional Administration Measures for the Foreign-invested Commercial Enterprises and the Approval Rules for Chinese-foreign Invested Securities Companies. Aiming to implementing the promises by making the foreign investment policies coherent to he WTO rules, and aiming to fully take the advantages of the international industry structure adjustment by utilizing foreign investment in combination with the strategic adjustment of national economic structure and the reform of state-owned enterprises, the Chinese government has newly issued the Provisions for Guiding the Directions of Foreign Investments and the Guiding Catalogues of Foreign Investments (hereinafter referred to as "the Guiding Catalogues of 2002") .The two pieces of legislation, reflecting the orientation of China's absorbing foreign investments in the new era of post-WTO, are the legal basis upon which the pre-establishment of foreign-invested enterprises shall be dealt with. In contrast to the Guiding Catalogues of Foreign Investments issued in 1997(hereinafter referred to as the "Guiding Catalogues of 1997"), the Guiding Catalogues of 2002 have four changes in terms of the contents. Firstly, the items under the classification of encouragement increase from 186 to 262, while those under the heading of restriction decrease from 112 to 75; the municipal networks of gas, heat and water supply and drainage have unprecedentedly been put open for foreign investment. Secondly, in line with the promises made upon the entry into the WTO by the Chinese government, the sectors of banking, insurance, commerce, foreign trade, tourism, telecommunication, transportation, accounting, auditing and legal service have been opened more widely and deeply in light of the territory, quantity, business scope, requirement for share ratio and timetable as promised upon the entry into the WTO by the Chinese government. And the detailed contents of the promise are listed to the annex to the Guiding Catalogues of 2002. Thirdly, general industrial products are classified under the heading of permission with the view to promoting industries and products elevation through market competition. Fourthly, the foreign investments in the preferential industries of the Western Areas are greatly encouraged by way of loosening the restrictions to the share ratio and industry allowable to foreign investments. Compared with the Guiding Catalogues of 1997 from the perspective of structure, the Guiding Catalogues of 2002 contain two important changes. One is that the classification of restriction is no longer divided into subheading A and B but provided as a whole. The other is the present classification of the industry /product is made according to the method adopted in the national economic statistics. It should be noted that since there stands no more subheading B under the classification of restriction, the foreign-invested projects falling under the classification of encouragement alone are granted the preferential treatment of the exemption from import tariff and the import value-added duty levied on the imported equipment thereto. The Guiding Catalogues of 2002 show that, in a certain period of time from now on, the foreign investments encouraged by the Chinese government are mainly as the follows:
Besides, in respect of the legislation for intellectual property rights, China finished the amendment to the Patent Law and its Implementing Rules, Trade Mark Law, Copyright Law and Computer Software Protection Regulations. Integrated Circuit layout and Design Protection Regulations has been recently promulgated. The revision to Implementing Rules for the Trade Mark Law, the Implementing Rules for Copyrights Law and the Implementing Measures for the Pharmaceutical Administration Law are expected to be ended before long. In virtue of such efforts, China has enlarged the scope subject to the intellectual property right protection, prolonged the protection terms and intensified the steps for protection. In other words, Chinese government is going to be fully up to the requirements made by TRIMS under the WTO for the intellectual property rights protection in terms of legislation. It's known to all that the intellectual property rights are extremely important to investments, in particular, to those made in high-tech industries. Making new regulations and amending the existing laws and regulations relating to intellectual property rights is not only to meet the requirements by TRIMS so as to fulfill the promises made by Chinese government for entering the WTO, but also greatly benefit to improving investment climate. As mentioned at the beginning, China now is improving its legislation for foreign investment in two folds, one in conformity with the WTO system and the other following the domestic needs. These two folds go with hand in hand. However, some measures that Chinese government is taking particularly for the latter purpose should be noticed here. Foreign investment made in high-tech industries is keenly encouraged by the Chinese government with the aim at promoting the industry and products optimization and escalation. Since late 1990s, a series of preferential treatments, esp. relating to taxation incentives, are accorded to the foreign investment involving high-technology. In addition, in purpose of offering the high-tech industry development in China with more funds in a more direct way, The Interim Provisions for the Establishment of Foreign-invested Venture Capital Investment Enterprises (hereinafter referred to as "the Venture Capital Provisions") was issued last August. Even before that, some relating rules and provisions had been passed at the local level by local governments. The Venture Capital Provisions have surely stimulated the interest of foreign venture capital funds in coming into China by way of forming venture capital investment enterprises. They also see it an opportunity for them to tap into the vast ocean of Chinese capital market. The Venture Capital Provisions mainly provide the forms of foreign-invested venture capital investment enterprises, the conditions upon which the enterprises shall be established, the way of making contribution by investors to the enterprises, the procedures of the approval by the authorities for the establishment, the business scope of enterprises management of the enterprises and the exit of the venture capital from the invested enterprises. Bearing in mind certain basic differences between the international practices and the existing Venture Capital Provisions, the relevant governmental departments are considering revising the provisions where appropriate. Among others, the conditions upon which the venture capital investment enterprises shall be established, including the qualifications of the investors are expected to be modified. It will become easier for the investors to be engaged in the venture capital investment. The prevailing practice of limited liability partnership shall be introduced as an important and more convenient vehicle for venture capital investment. By the way, China's Partnership Law in 1997 will be amended in the near future partly by virtue of the introduction of the rules of limited liability partnership. Besides, the feasibility for some special tax treatment to the venture capital investment enterprises is also in consideration. Transnational corporations are the great driving force in the global expansion of investment flows, enlarging the role of international productions in the world economy. China is taking concrete measure to further attract the transnational corporations to invest in China. Establishing investment companies has been a main vehicle for the transnational corporations to pool its money and provide management as well as services for the investments made by TNCs in China. To enlarge the business scope so as to strengthen the functions of the investment companies shall be a big incentive for transnational corporations to bring much more funds, managerial technology and talents into China. This is the basic idea for the relevant governmental departments to conceive the modification to the current rules and provisions for the foreign-invested investment companies at the present time. Except for the activities engaged by the foreign-invested investment companies permitted in the existing rules and provisions, the foreign-invested investment companies satisfying certain requirements shall be allowed to take part in much wider-range business activities. For instance, the investment companies will be permitted to apply for more loans other than being limited to 4 times of its registered capital as provided in the present rules. Besides, they will be, to some extent, granted the positions as the financial companies. Certain services areas, such as distribution, maintenance after-sales will be open in a way to the investment companies. It is obvious that the expected foreign-invested investment companies, along with its origin function of making direct investment in China, from now on will enjoy more and more autonomy and privileges to provide their investments with various kinds of service and facilities. This makes it possible for the transnational corporations to better implement their global business strategies. And as a result, China will be more fully participating in the process of world economy globalization and be benefited from such an international production co-operation. In recent years, cross-border mergers and acquisitions (M&As) have been the stimulus behind the world investment flows. To create smooth channels for foreign fund coming in not only by way of Greenland investment alone but also M&As becomes the critical task for the Chinese government to absorb more foreign investment. What's more, compared with the Greenland investment, M&As are, in a sense, much more significant and beneficial for China to reform its State-owned enterprises and fully take use of the present resources. How to carry out M&As in China is the basic question which need be answered. Some of the existing rules and provisions do partly relieve the concerns of this issue, such as the Provisions for the Change of Investors in Foreign-invested Enterprises, the Provisions for Merge and Split-off of Foreign-invested Enterprises, the Interim Provisions for Certain Issues concerning the Establishment of Foreign-invested Limited-liability Companies. However, as a parallel way of absorbing foreign investment with Greenland investment, M&As should be dealt with in a systematic manner by providing a set of specialized rules for its own. Therefore, the provisions for the foreign fund to merge domestic enterprises or acquire the assets of the domestic enterprises have been drafted and presently in the process of review before its final promulgation. The provisions offer two channels for the foreign funds to enter China by way of M&As. One is that foreign funds may merge with or acquire the domestic enterprises through buying shares or stocks of such enterprises. The other is to buy the whole assets of domestic enterprises and then manage such assets. In terms of the latter, the foreign investors still have two choices. They may firstly establish a foreign-invested enterprise and then, as the second step, to buy and manage the whole assets of domestic enterprises. Or the foreign investors may buy the whole assets of domestic enterprises and simultaneously using such assets to establish a foreign-invested enterprise. No doubt, foreign investors merge and acquire the domestic enterprises through buying assets always end in the establishment of foreign-invested enterprises in the general sense recognized by the current Chinese foreign investment laws and regulations. However, the situation of buying shares or stocks is rather more complicated. Where the foreign fund accounts for no less than 25% in the registered capital of the said enterprise, the enterprise shall be accordingly changed into a foreign-invested enterprise and enjoy the preferential treatment granted by law. In case of the foreign fund accounting for less than 25% in the registered capital of the said enterprise, such enterprise may be changed as a foreign-invested enterprise but kept from enjoying the preferential treatment granted by law. It should be noted that attention has been paid to the possible monopoly or the monopoly trend resulting from M&As in China. Where the M&As involve relevant factors, such as reaching a certain amount of money or taking a certain number of M&As in a fixed period time, shall be subject to hearings in order to prevent from spoiling market competition and damaging the consumers' welfare. Along with the legal environment improvement in China, presently the Chinese government is also taking measures to better the administrative environment. The most conspicuous one is the launching of administrative approval system reform. The traditional administrative approval system is an old practice to allocate resources and manage economy under the planed economic system. Though the WTO system itself contains few rules directly relating to the administrative approval, the foundation of market economy upon which the WTO system is established strongly challenges the traditional administrative approval system. The Chinese government had set up a specific agency to be in charge of reforming the current administrative approval system. The agency takes the responsibility to decide, among more than 2000 items currently subject to administrative approval, which are to be abrogated, maintained or simplified. It is worth noting that since the foreign investment is part of the fixed assets investment, the approval system reform should be considered in accordance with the reform for the investment and financial system as a whole which need be carried with extreme caution. Therefore, at the present time, no fundamental change has been made to the for foreign-invested projects approval system. But generally speaking, reforming the existing approval system is inevitable will be put into practice before long. The more open market has also been contributable to attracting more foreign investment into China. With the entry into the WTO, the general level of tariff decreased from 15.3% to 12%, more than 5300 items involved. Among others, the average tariff of the industrial products cut down from 14.7% to 11.3% and that of agricultural products (aquatic products excluded) from 18.8% to 15.8%. And non-tariff measures have been further reduced. The requirements of quota, licenses and specified bidding administration for certain products now are no longer in practice any more. What's more, many sectors esp. those in the service area become more open for foreign investment. Basically, sectors of the agriculture and manufacture area are almost fully open. In addition, with entry into the WTO, China has opened more widely for the foreign investments the sectors in the infrastructure and service area. The sectors of banking, insurance, commerce, foreign trade, tourism, telecommunication, transportation, accounting, auditing and legal service etc. shall attract a large amount of foreign investment to be made in China, particularly by the investors from the U.S.A. and the E.U who have advantages in these areas. Chinese government is adopting a series of concrete measures to enlarge the scale and raise the quality of utilizing foreign investment in service area. Take the instance of commercial. On the basis of the existing the Measures for Pilots of Foreign-invested Commercial Enterprises, the Chinese government now is in the process of drafting the Provisional Measures for Administration of Foreign-invested Commercial Enterprises in line with the promises made upon its entry into the WTO. The Chinese government is trying to put an end to the practices of pilot with the start of opening-up in a normal way. The channels of business shall be broader with the focus on that of chain stores and logistics. Foreign investments are encouraged to be made for the restructure of the traditional commercial enterprises and speed up establishing the modern circulative system as well as optimize the operation forms of foreign investment in commerce. The plan for urban commercial development and the plan for utilizing foreign investment in commerce are expected to come out soon and special incentives and supportive measures for investment in the Western Areas shall be provided with. After the elaboration of the improvement of Chinese investment climate upon its entry into the WTO, I wish to address other two relating points. One is the expectation from foreign investors for the perspective of investing in China and the other is the possible changes in the structure and mode of utilizing foreign investment by China after its accession to the WTO. A survey with the objective of revealing the opportunity for foreign investors to invest in China after its entry into the WTO was conducted during last October and November. The result of the survey showed that, at the time of survey, 51% of the foreign investors who had made investments in China by then considered China as an important destination for investment while the proportion rose to 86% in terms of the coming three years. For those who then did not have any investments in China, the corresponding figures were respectively 25% and 57%. The data indicate that the confidence in making investment in China by foreign investors has greatly increased by virtue of China's entry into the WTO. The situation of China's utilizing foreign investment during the recently passing 5 months from the date of 11 December 2001 on which China formally became a member of the WTO to now just prove the result of the survey exactly true. During these 5 months, the contractual amount of foreign investment increased amazingly by 40% and the amount of foreign investment which had actually come in went up by 15%. Except the fast increase in quantity, it should be safe to expect that, China's utilizing foreign investment will take on a new look in a longer run in terms of its quality. That means that, with its boom in China, foreign investments will make more contribution to the stable, speedy and sustainable development of Chinese national economy. The future utilization of foreign investment in China will be featuring the following ways:
[closing remarks] Remarks: TRIMS: Trade Related Investment Measures Go
To Top
|
