The Chinese government will optimize foreign investment inflow to the country to offset any negative impact from policy adjustments, according to a senior commerce official.

 

"We will encourage foreign investment to industries involved in high-tech, modern services and high-end manufacturing," said Li Zhiqun, director of the commerce ministry's Foreign Investment Department.

 

He added China will also encourage foreign investors to move from the nation's coastal to central and western regions.

 

He said the ministry would accelerate plans to publish foreign investment guidelines this year. The information will encourage foreign investors to look at high-tech industries, advanced manufacturing and modern services when investing in China, as well as set up research and development centers in the country.

 

Meanwhile, an unnamed finance ministry official was quoted by Xinhua News Agency as saying China will use import and export tariffs to guide foreign capital inflows.

 

New policies will be launched this year, with import tariffs to be used to guide foreign capital flows into the high-tech, agricultural and manufacturing sectors, the official said.

 

But Li noted there are a number of changes in the country's policies expected to affect the country's ability to lure foreign investors.

 

According to a draft law, the country will unify income tax rates for domestic and foreign companies at 25 percent. Chinese domestic companies currently pay 33 percent income tax, while foreign companies, which benefit from tax waivers and incentives, pay an average 15 percent.

 

China also strengthened regulations on processing trade and reduced export tax rebates in some categories and will further adjust land use and environmental protection policies this year, all of which is likely to dampen favorable policies for foreign investors.

 

"That means some uncertainties in attracting foreign investment," Li said.

 

According to the latest survey of the United Nations Trade and Development Council, China has replaced the United States as the preferred location for multinationals' research and development centers.

 

Li said China is expected to benefit from the change because it will help the restructuring of domestic industries and improve the quality of foreign investment.

 

China received some $69.5 billion in actual foreign direct investment (FDI) last year, but growing foreign capital also caused strong debate about whether too many foreign mergers and acquisitions (M&As) will hurt domestic industries.

 

Li said that foreign M&As are not a threat now, as "M&As by foreign investors are actually seldom seen in China and most of the FDI to China is greenfield investment".

 

Multinational M&A activities in recent years have been small-scale and include the heavy and chemical industries, consumer goods manufacturing and services.

 

"We hope to avoid foreign investors' monopolies and vicious mergers and keep control of the key sectors to guarantee national economic security," Li said.

 

(China Daily February 27, 2007)