Industrial upgrade, less restrictions create opportunities in China

BEIJING - After an accumulative investment of over 6 billion euros in China over past two decades, the world's leading chemical group BASF has recently inaugurated a new plant for emollients and waxes in Shanghai.

With an investment of 150 million yuan ($22 million), the project is BASF's largest ever investment in emollients production in Asia Pacific. The company has also set up its Innovation Campus Asia Pacific in Shanghai.

Against the backdrop of a mildly retreating foreign direct investment (FDI), BASF's expansion shows foreign investor confidence in the structural upgrade of Chinese economy.

FDI on the Chinese mainland dropped 3.7 percent year on year in May to 54.67 billion yuan, extending a downward trend, fresh data from the Ministry of Commerce (MOC) showed.

The decline followed a mild retreat in the previous month, when FDI was 4.3 percent lower than last April, in contrast with a 6.7 percent increase in March.

Despite a drop in the overall FDI, foreign investment in the mainland's service sector, especially high-tech and modern service industries, continued steady growth.

In the first five months, 12,159 new foreign-funded enterprises were established on the mainland, up 11.9 percent. The high-tech service sector attracted 48.64 billion yuan of foreign capital, up 20.5 percent year on year, according to the MOC.

Meanwhile, for the manufacturing sector, FDI in communication equipment manufacturing jumped 46.6 percent in the five-month period.

"Foreign investors are gradually quitting labor-intensive industries and shifting to capital and technology-intensive industries in China," said Professor Sun Lijian from Fudan University.

Thanks to structural upgrades which have cushioned long-term downward pressures, China's economic growth held steady in the first five months as key service indicators rose rapidly.

The National Bureau of Statistics (NBS) reported May growth of 8.1 percent for the service sector Wednesday, flat with April and extending the rally since the beginning of the year. The data confirmed the message that the ongoing growth model transitioning was providing new impetus to the world's second largest economy.

The service sector accounted for more than half of the Chinese economy last year. NBS data shows that the service sector has taken up a bigger share of GDP compared to the secondary industry in 60 percent of provincial-level regions.

"International experience has shown that the distribution of foreign investment changes with economic development and structural adjustment," said Bai Ming from the MOC.

Sun said China's huge market potential, abundant human resources and maturing industries were very attractive to high value-added capital, and many foreign companies had established their research and development centers in China.

Shanghai now has more than 400 research and development centers set up by foreign companies which provide the interfaces for the city to embed itself into the global innovation network.

"For those really competitive foreign companies, they are finding China a better investment destination," Sun said.

With a shorter negative list for foreign investment, China has made a further step in opening up its vast market.

A revised guidance catalogue for foreign investment in China will soon come into force, with relaxed restrictions on foreign ownership in automotive electronics, new energy vehicle batteries, motorcycles and other industries, according to the MOC.

The new catalogue was adopted last month at the 35th meeting of the Central Leading Group for Deepening Overall Reform, which urged further opening up in such sectors as services, manufacturing and mining.

A draft of the catalogue, which was published earlier to solicit public opinion, showed the number of industries off-limits or restricted for foreign investment, the negative list, would be cut from 93 to 62.

The revision was viewed as another significant move by China to open up its economy in a global environment of rising protectionism.

The country is moving fast to lower thresholds for foreign investors. More industries have been accessible to foreign investment in the country's free trade zones, while laws were amended last year to simplify the approval procedures for foreign companies.

Today, over 95 percent of new foreign enterprises in China do not need government approval before they are set up, and the registry procedures take less than three days, compared with more than 20 days previously, according to Fang Aiqing, vice minister of commerce.

Authorities have also pledged to treat foreign firms the same as domestic companies when it comes to license applications, standards-setting and government procurement.