China: Investing

FDI in Figures

The absorption of FDI flow is part of China's opening up to the outside world. After reaching a peak in 2008 and subsequently falling under the effects of the global economic crisis, FDI flows have recovered and the trend should continue in the future.
China is an unexploited market and a potential for considerable growth due to several reasons:
- It's the biggest internal market in the world with 1.3 billion potential customers;
- it's a rapidly growing market (minimum 8% growth per year); and
- the labor costs are low even if this situation is changing in certain areas;
- with the development of the Western provinces, China offers new opportunities, particularly in the Sichuan province.

Nevertheless, certain factors can hinder investments, such as China’s lack of transparence, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which privilege local businesses.

Foreign Direct Investment	2008	2009	2010
FDI Inward Flow (million USD)	108,312	95,000	105,735
FDI Stock (million USD)	378,083	473,083	578,818
Performance Index*, Ranking on 141 Economies	94	76	-
Potential Index**, Ranking on 141 Economies	30	-	-
Number of Greenfield Investments***	1,515	1,143	-
FDI Inwards (in % of GFCF****)	5.3	37.0	-
FDI Stock (in % of GDP)	8.7	10.1	-

Source: UNCTAD - Last Available Data.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

FDI Inflows By Countries and Industry

Main Investing Countries	2008, in %
Hong Kong	38.9
Virgin Brithish Islands	10.0
Japan	7.3
USA	6.6
Taiwan	5.3
Korea	4.7
Singapore	4.2
Caiman Islands	1.8
UK	1.7
Germany	1.7
Samoa	1.4
The Netherlands	1.0

Main Invested Sectors	2008, in %
Manufacturing	46.1
Real estate	17.2
Finance	15.2
Business services	4.7
Wholesale and retail trade	4.1
Transport, storage, telecommunications, postal services	2.6
Computers and software	2.5

Source: Invest in China - Last Available Data.

Form of Company Preferred By Foreign Investors: WFOE
Form of Establishment Preferred By Foreign Investors: Holding
Main Foreign Companies
Sources of Statistics: Invest in China

Why You Should Choose to Invest in China

Strong Points: China has a rapidly expanding market, which was not overly affected by the financial crisis. With a strong potential, a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production.
Weak Points: A changing legal context, administrative complexity, the difficulty for foreigners to learn the way of conducting business, both culturally and in practice, a poor middle management level and a very high staff turnover are factors which are often crippling in market acquisition.
Government Measures to Motivate or Restrict FDI: In the foreign investment guide published by the State Commission for Development and Reform in November 2007, the Chinese government made it known that investments in sectors or Chinese companies that already have "a relatively strong production capacity with advanced technologies 'will not be encouraged', while investments in high technology, production of equipment and new materials, and in the services sectors, as well as in the recycling economy, clean production, use of renewable energies and environmental protection, will be welcomed as they are sectors in which China needs foreign companies.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By China: China has signed bilateral agreements for investments with several countries.
To see the list of the countries, click here.
To see the conventions, click here.
International Controversies Registered By UNCTAD
Organizations Offering Their Assistance in Case of Disagreement: CIETAC , The International Commission of Economic and Commercial Arbitrage
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: China is a signatory of the Convention of MIGA.

Country Comparison For the Protection of Investors

	China	East Asia & Pacific	United States	Germany
Index of Transaction Transparency*	10.0	5.2	7.0	5.0
Index of Manager’s Responsibility**	1.0	4.5	9.0	5.0
Index of Shareholders’ Power***	4.0	6.3	9.0	5.0
Index of Investor Protection****	5.0	5.3	8.3	5.0

Source: Doing Business - Last Available Data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Procedures Relative to Foreign Investment

Freedom of Establishment: Varies according to the sector. Necessity to submit its 'business plan' for prior approval to setting up.
Acquisition of Holdings: The acquisition of majority interest in a local company is authorized in China according to the sectors.
Obligation to Declare: The agency for promotion of foreign investments in the country facilitates getting information on authorizations necessary for setting up.
Requests For Specific Authorizations: Necessity for all projects to submit a business plan subject to approval by competent authorities.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Rental and Business center. Purchase by foreign companies is subject to restrictions.
-         Telecommunications
-         energy
-         environment
-         high technology
-         services
The Possibility of Buying Land and Industrial and Commercial Buildings: Not possible to buy land in China. Only a right of use of 50 to 70 years can be approved.
Risk of Expropriation: The risk of expropriation is high. The law envisages a compensation but no indication is given on the amount or its calculation.

Investment Aid

Forms of Aid: Foreign investors enjoy corporation tax reductions, exemption of tax on dividends repatriated during a period and other tax advantages
The Ministry for Foreign Trade and Economic Cooperation (MOFTEC) can be contacted for any information concerning opportunities in China.
Privileged Domains: China especially encourages overseas investments in high technology, appropriate energies and the sectors with export oriented activities.
Privileged Geographical Zones: The government has created various zones, granting each tax exemptions or tax incentives to attract overseas investments. They are primarily the 5 special economic zones and the 14 coastal cities.
The special zones are Shenzhen (at the border of Hong-Kong), Zhuhaï (close to Macau), Shantou, Xiamen (vis-à-vis Taiwan) and the island of Hainan. They were selected because they were completely under-developed.
Les 14 coastal cities are Dalian (in the province of Liaonong), Shanghai, Ningbo, Wenzhou (in the province of Zhejiang), Fuzhou (in the province of Fujian), Guangzhou, Zhanjiang (in the province of Guangdong), Beihai (in the autonomous region of Guangxi Zhuang), Tianjin, Yantai, Qingdao (in the province of Shandong) and Lianyungang, Nantong (in the province of Jiangsu). Since a few years, other cities are also regarded as coastal towns profiting from the same status. Unlike the 5 special zones, which were not underdeveloped, but key industrial centers in China. Overseas investments made it possible to improve the infrastructures and create new, more advanced ones.
Free Zones: 3 Free zones also exist in Shanghai, Tianjin and Shenzhen where imports are free of all customs duties and taxes provided no goods produced inside the zone are resold on the local market. Bonded warehouses, trading companies and production intended for export are authorized there. In addition 2 other zones exist in the same regions (Export Processing Zones) also enjoying exemptions from customs duties, but in which trade activity is not authorised.

Investment Opportunities

The Key Sectors of the National Economy: Agriculture, breeding, forestry and fishing, extraction, manufacture and services.
High Potential Sectors: Chemical industry, insurance and bank, high technology, renewable energy, environment.
Privatization Programs: Soon:
-       Telecommunications
-         energy
-         environment
-         high-technology
-         services
Tenders, Projects and Public Procurement: Chinabidding, Tenders in China
Tenders Info, Tenders in China
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: -         weapons

-         telecommunications

-         energy

-         environment

-         high- technology

-         water supply

-         electricity distribution

-         services
Sectors in Decline: The manufacturing sector with low added-value suffers from rising prices of transport and competition of the other Asian countries (e.g. Vietnam). These products are less competitive.

Finding Assistance For Further Information

Investment Aid Agency: Invest in China
Other Useful Resources: The heading dedicated to business opportunities of the Chinese agency for international investors
Doing Business Guides: Le "International Tax and Business Guide" of Deloitte on China
China Commercial Guide 2010 - Buy USA

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