Transnational firms, many of which have already secured a niche in the promising Chinese market, are falling over themselves to escalate their investment strategies in China, which has promised wide-ranging reforms to open its door wider to globalization, according to a report released by the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) on Tuesday.

A more open market and more internationally compliant policies after China joins the WTO, as well as a vigorous economy "are set to make China more attractive to transnational firms," said Hu Jingyan, director of Foreign Investment Department under the MOFTEC.

"Foreign companies are revamping their China strategies, inventing manufacturing of raw materials and parts and readying themselves to tap the service industries," said Wang Zhile, a co-author of the 2001 Report of Transnational Corporations' Investment in China. "A high tide of foreign investment in China is taking shape," he added.

Since foreign direct investment (FDI) replaced foreign loans early in the 1990s as China's primary form of foreign capital inflow, the country remained a "low-level partner" of foreign giants, working as their manufacturing factory, trying to be a research and development (R&D) center, and by no means being their global operational center.

In what he called a third phase of foreign investment in China, transnationals are attaching more importance to China in their global strategies, enhancing manufacturing in the country emerging as "the factory of the world", expanding R&D investment, scaling up engagements in knowledge-intensive service industries, including banking, insurance, telecommunications, retail and logistics, seeking opportunities for the faster approaches of mergers and acquisitions, and wooing the private sector for new business partners, Wang said.

Some 240 of the world's top 500 heavyweight firms have invested in China, exerting tremendous competitive pressure on domestic firms while accelerating its integration into the world economy.

"The process of transnational firms investing in China is also the process in which China takes part in globalization," the researcher said.

He said the threat of possible market monopolies by TNCs to China's economic security, which some fear would happen, was "not as severe as what people imagined."

"The real threat comes from a lack of ability to compete globally," he added.

With the WTO entry poised to intensify competition between domestic firms and foreign companies, Wang endorsed fostering a fair market with full competition "the best choice" by the Chinese Government.

"Its role in harnessing and encouraging fair competition is far greater than policy action," he said.

The Chinese Government is revising rules governing foreign investment, encouraging investment in the poorer western areas, loosening restrictions in service industries and exploring new ways, such as ownership restructuring, to absorb foreign capital.

He urged domestic companies to cooperate with foreign competitors, to strengthen themselves through learning before they can finally compete on an equal footing, in a "learn, cooperate and compete" approach.

China's FDI surged by 20.39 percent in the first eight months of the year to US$27.4 billion, according to a monthly report from MOFTEC.

(China Daily 09/26/2001)