From Going Out to Going Global Past and

From “Going Out” to “Going Global” ——Past and Future of China’s Overseas Investment Policy Dr. Ma Xiaoye, Ph. D. Economist Academy for World Watch, Shanghai aww@aww. ac. cn

Introduction Overheated report coverage Diplomatic policy? Facts and interpretation are confusing

Everybody Knows with wild imagination …

1. Relevant researches Reports by international organizations Policy statement by Chinese government M&A events reports Data “digging”--BOP v. s. Approval

2. Confusing Data & Concept Flow & stock (annul & cumulative) Data using “balance of payment” statistics IMF, OECD, UNCTAD Moftec-Ministry of commerce data Demarcation: 2002 onwards Problem of present statistics Statistics by region-Hong Kong puzzle

3. Policy formation & background

Background of outflow fluctuations Preferential loan to foreign trade company before 1994 Loan quota to foreign trade unchanged before 1997, even when fighting against inflation Dual exchange rate and exchange quota Incentives encouraging round trip investment: tax benefit and approval conveniences “Going out”-- OPA of redundant capacity, starting 1997 World economic recession WTO background: competing abroad Domestic market saturation

Capital scarcity in relative term, even nowadays. Self-reliance—world market is supplement to domestic market Foreign currency concern. Inherited governance problem of SOEs Poor performance— 1/3 profitable enterprises, 2/3 running loses Over-sensitivity on China’s going global policy externally

3, Where are we standing? End of 2004 $37 billion accumulated; Project completed, $114. 03 billion; Contracted project value, $156. 29 billion; Labor cooperation, $30. 82 billion; Contracted labor value, $36. 11 bilion. Labor work abroad, 3. 193 million person. Contracted project breakdown: Real estate: 31%; Transportation: 17%; Petrol-chemical: 10%; p Telecom: 10%; Power: 9%; Manufactures: 9%.

Increase over year 2003: Number of project: 62. 5%; Contract value: 77. 8% Average investment value per project: 9. 5% Distribution by industry sectors: Mining, $1. 91 billion, 52. 8% of total; Commercial service, $0. 96 billion, 26. 5% of total; Manufacture, $490 million, 13. 2% of total; Wholesale and retailing, $110 million, 3%; Others, $150 million, 4. 2% of total.

3 years since WTO accession 2002 2003 2004 $2. 7 billion $2. 85 billion $3. 62 billion Increase by 5. 5% Increase by 27%

4, Enforceable policy measures—status quo “ 16 th party congress” decision: Attract-in and going-out are equal important “Decision on reform of investment regime” 2003 Pending “Administrative regulation” Risk assessment for approval— 11 items reduced to 5 Currency purchase quota—reviewed case by case Deposit for profit rebate—eliminated 2001 onward Decentralized 3. 3 billion foreign currency purchase quota approval for investing abroad Self earned foreign currency—subject to approval Domestic foreign currency loan—subject to scrutiny Increase of investment amount (equity)—same as above approval Not possible to get cash

New approval procedure starting Oct 2004 • Scope: Oversees assets and management right acquired through exchange of cash, securities, materials, IPR, technology, stock, bond or guarantee. • Approval authorization on intended investment projects (Resources) State council: $200 million State commission of development and reform: $30 million upwards Local commission of development and reform: Below $30 million • SOEs directly under control of central government may make investment decision on its own and report afterwards, subject to a ceiling of $30 million. • Verification Any change of the investment up to 20% of the original amount will be subject to re-approval.

Foreign currency purchase approval agencies $50 million and above-- state council. $10 million and above--state commission of development and reform. Any amount bellows $10 million--provincial commission of development and reform. Layers of approval by administration SOEs directly under control of central government ＞state commission of development and reform ＞state council. Other enterprises＞ provincial commission of development and reform＞state council. Time needed for approval State commission of development and reform, 20 -30 days. Other government institutions concerned, 7 days prior report required for bidding abroad. Fore front guarantee also subject to approval.

--Resources scarcity --Over capacity of manufacture --Unreleased domestic consumption power, especially in rural area --Insufficient R&D input at all level— 0. 75% --Protectionist challenge --Processing center instead of manufacture center Still some way to go as a policy with enforcement measures Positive factors: 112 bilateral investment protection agreements 87 agreements on avoiding double taxation MOU on labor cooperation Arrangement on social securities Negative factors: No investment law Yet to open capital account Currency control Bank loans availability Investment insurance

5, Some phenomena Not many case show vertical value chain extending like logistics & after sale services (12. 6% in 2003) Manufactures mainly are household electronic applicants Resources (48. 2% in 2003) Few R&D investment Geographic distribution is changing positively (Asia attracts 80%) Greenfield investment are mainly assembling operation SOEs account for 43% in 2003

6, Will China pour money globally? Ministry of finance and PBOC concern SOE governance Per capital formation constraint Less developed economy in term of GDP Urbanization and employment challenge Corruption sensitiveness “Two ends” abroad Currency appreciation incentive Domestic market saturation