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Wednesday 26 November 2008
Perspective Shifts on Foreign Investment Amid Growing Nationalist Sentiment
Despite the great contribution it has made to the mainland’s economic growth, exports and employment, foreign investment has been the cause of increasing criticism for its negative impact on the country.
Perspective Shifts on Foreign Investment Amid Growing Nationalist Sentiment
Woods Lee 26 November 2008
Despite the great contribution it has made to the mainland’s economic growth, exports and employment, foreign investment has been the cause of increasing criticism for its negative impact on the country.
The criticism usually points to foreign investment’s high concentration in the manufacturing and real estate sectors, and its indifference to the service and especially agricultural sectors; its slack enforcement of environmental protection standards on the mainland; and, most unbearable for some, its aggressive acquisition of well-known brands and leading enterprises in key industries, which is said to be jeopardising national industrial security.
Some analysts have even argued that the mainland should shut the door to foreign investment on the grounds that the country now has an abundance of capital, a far cry from the scarcity of 30 years ago. These analysts say the mainland’s bulging fiscal revenues, more than 20 trillion yuan (HK$22.7 trillion) in household savings and US$1.9 trillion in foreign exchange reserves, are sufficient resources not to have to surrender to foreign investment.
This position seems to be having an effect. After waiting as long as three years for approval from mainland regulators, the United States’ Carlyle Group had to abandon plans to acquire a 45 per cent stake in Xugong Construction Machinery Group in July amid overwhelming accusations it was encroaching on a “key strategic industry”.
Meanwhile, Coca-Cola’s bid for the Hong Kong-listed juice-maker Huiyuan for US$2.4 billion has come to be seen as a litmus test for nationalist sentiment since the proposed deal was announced in September. It is currently awaiting government approval.
However, Coca-Cola faces mounting criticism for what is seen as an attempt to monopolise the mainland soft drink market via the deal.
The new circumstances have inspired the central government to shift its perspective on foreign investment from quantity to quality. The question now is not just how much foreign funding goes into the mainland, but whether such investment suits the country’s needs.
In its 11th five-year plan (2006-2010) on foreign investment utilisation, Beijing made it clear it would not shun foreign investment though it would become more selective when judging whether foreign investors could deliver advanced know-how, improve domestic industrial structures and boost technical and management innovation.
“A complete shutting of the door [to foreign investment] would be irrational,” said Mei Xinyu, an expert at the Ministry of Commerce’s research institute. “Yes, China now has money, but it still cannot efficiently transform the money into investment. And we still have to recognise our weakness in technology and management compared with big foreign multinationals.”
Beijing effectively ruled out any slamming shut of the door. A statement by Commerce Minister Chen Deming on a government website said: “China will maintain the continuity and stability of its policies towards foreign investment, and we will continue to take great efforts in developing an economy open to the outside world.”
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Perspective Shifts on Foreign Investment Amid Growing Nationalist Sentiment
Woods Lee
26 November 2008
Despite the great contribution it has made to the mainland’s economic growth, exports and employment, foreign investment has been the cause of increasing criticism for its negative impact on the country.
The criticism usually points to foreign investment’s high concentration in the manufacturing and real estate sectors, and its indifference to the service and especially agricultural sectors; its slack enforcement of environmental protection standards on the mainland; and, most unbearable for some, its aggressive acquisition of well-known brands and leading enterprises in key industries, which is said to be jeopardising national industrial security.
Some analysts have even argued that the mainland should shut the door to foreign investment on the grounds that the country now has an abundance of capital, a far cry from the scarcity of 30 years ago. These analysts say the mainland’s bulging fiscal revenues, more than 20 trillion yuan (HK$22.7 trillion) in household savings and US$1.9 trillion in foreign exchange reserves, are sufficient resources not to have to surrender to foreign investment.
This position seems to be having an effect. After waiting as long as three years for approval from mainland regulators, the United States’ Carlyle Group had to abandon plans to acquire a 45 per cent stake in Xugong Construction Machinery Group in July amid overwhelming accusations it was encroaching on a “key strategic industry”.
Meanwhile, Coca-Cola’s bid for the Hong Kong-listed juice-maker Huiyuan for US$2.4 billion has come to be seen as a litmus test for nationalist sentiment since the proposed deal was announced in September. It is currently awaiting government approval.
However, Coca-Cola faces mounting criticism for what is seen as an attempt to monopolise the mainland soft drink market via the deal.
The new circumstances have inspired the central government to shift its perspective on foreign investment from quantity to quality. The question now is not just how much foreign funding goes into the mainland, but whether such investment suits the country’s needs.
In its 11th five-year plan (2006-2010) on foreign investment utilisation, Beijing made it clear it would not shun foreign investment though it would become more selective when judging whether foreign investors could deliver advanced know-how, improve domestic industrial structures and boost technical and management innovation.
“A complete shutting of the door [to foreign investment] would be irrational,” said Mei Xinyu, an expert at the Ministry of Commerce’s research institute. “Yes, China now has money, but it still cannot efficiently transform the money into investment. And we still have to recognise our weakness in technology and management compared with big foreign multinationals.”
Beijing effectively ruled out any slamming shut of the door. A statement by Commerce Minister Chen Deming on a government website said: “China will maintain the continuity and stability of its policies towards foreign investment, and we will continue to take great efforts in developing an economy open to the outside world.”
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