The 11th Five-year Plan on Foreign Capital Utilization (1)
Source: SDRC View: 503 Date: 2011-05-16

Preamble

The 11th Five-year Plan on Foreign Capital Utilization,which is an important part of the 11th Five-year Plan of China’s national economic and social development, based on making a summary of the overall situation of the 10th Five-year Plan on Foreign Capital Utilization and analyzing the domestic and foreign environments that the 11th Five-year Plan faces, puts forward the guiding ideology, strategic objective, key tasks, corresponding policy measures for foreign capital utilization in China for the 11th Five-year Plan, and is an important guideline of the foreign capital utilization work of China during the 11th Five-year Plan.

During the 11th Five-year Plan, we shall, for the sake of the work of the foreign capital utilization, comprehensively implement the scientific view of development, further propel the fundamental conversion of the foreign capital utilization from "being quantity oriented" to "being quality oriented", practically transfer the emphasis of foreign capital utilization from making up the shortage of funds and foreign exchanges to introducing advanced technologies, management experiences and high-quality talents, focus more on ecological construction, environmental protection, conservation and comprehensive utilization of resources and energies, and effectively combine the foreign capital utilization with the upgrading of domestic industrial structure and technological level.

In accordance with the plan consented to by the State Council on formulating special planning, and based on widely soliciting opinions from 40 related ministries, commissions and directly subordinate institutions under the jurisdiction of the State Council containing the Ministry of Foreign Affairs, the Ministry of Finance, the Ministry of Commerce, the People’s Bank of China, 11 industrial associations, the local departments of development and reform as well as some research institutions, enterprises, experts and scholars, this Plan is formulated by the State Development and Reform Commission.

Contents

1. Basic Information on Foreign Capital Utilization of China during the 10th Five-year Plan

2. Guiding Ideology and Overall Strategic Objective of Foreign Capital Utilization of China during the 11th Five-year Plan

3. Major Tasks of Foreign Capital Utilization of China during the 11th Five-year Plan

(1) Guiding the industrial structure optimization and upgrading of foreign investments

(2) Promoting the construction of a resource-conservative and environment-friendly society

(3) Propelling the opening up of service industries to the outside world actively and prudently

(4) Promoting the construction of an opener independent system of innovation

(5) Promoting harmonious development of the regional economies

(6) Realizing diversification of the methods of foreign capital utilization

(7) Improving the quality and returns of the utilization of foreign loans

(8) Strengthening the macro-monitoring and full-aperture administration of foreign debts

4. China’s Policy Measures for Foreign Capital Utilization during the 11th Five-year Plan

(1) Constructing a fairer and sounder foreign investment environment

(2) Intensifying the policy guidance to foreign investment industries and to the contribution thereof to selected regions

(3) Intensifying the implementation of resource conservation and environmental protection

(4) Guiding various forms of technical cooperation and united innovations of domestic and foreign funds

(5) Further strengthening the foreign loan borrowing administration

(6) Improving the level of the monitoring, control and management of the foreign debt risks

(7) Maintaining state economic security and public interests

(8) Actively taking part in formulating and coordinating international economic rules

The 11th Five-year Plan is a significant when the economic and social development of China serves as a link between the past and future. With the domestic and foreign environmental changes that China faces as well as the wider opening up to the outside world, the main purposes of the foreign capital utilization will be changed, and the philosophy, means, key industries, regional structure, etc. of the foreign capital utilization will also change greatly. To actively and effectively utilize foreign capital, and to practically transfer the emphasis to the introduction of foreign advanced technologies, management experiences and high-quality talents, are the key points for improving the quality of foreign capital utilization during the 11th Five-year Plan .

1. Basic Information on Foreign Capital Utilization of China during the 10th Five-year Plan

During the 10th Five-year Plan, marked by the entry into WTO, the opening up to the outside world of China has entered a completely new stage of fully taking part in international economic cooperation and competition, and the foreign capital utilization has also walked onto a new step. During the 10th Five-year Plan, a total of approximately USD 383 billion foreign capital was actually utilized in China , of which approximately USD 286 billion was foreign direct investments, approximately USD 38 billion was raised by issuing stocks overseas, and approximately USD 46 billion was foreign loans. The amount has far exceeded the actually completed amount during the of the 9th Five-year Plan. The main features are as follows:

(1) The scale of foreign investments has been extended, and the investment methods have been more diversified. In terms of foreign direct investments, during the 10th Five-year Plan, the utilization of foreign direct investments has increased by 34% over that during the 9th Five-year Plan. China has become one of the major destination countries of international capital and transnational companies’ investments. In respect of other foreign investments mainly through raising funds of overseas stocks, great progress has been made. By the end of 2005, 122 companies from the Mainland have been listed in Hong Kong and other stock exchanges overseas, and a total of USD 55,544 million funds have been raised (excluding red chip enterprises). A total of 34 overseas institutions are admitted as qualified foreign institutional investors (QFII).

(2) We have made prominent achievements in undertaking a new round of international manufacturing industry transfer. During the 10th Five-year Plan, China grasped the opportunities of structural adjustment and transfer of global manufacturing industry successfully, brought in large amounts of foreign direct investments in the manufacturing industry, and thus has become one of the important bases of production in the world preliminarily. The foreign investments that were absorbed in fund-intensive and technology-intensive industries obviously increased, and many large foreign-invested projects that had been prepared for years were carried out during the 10th Five-year Plan. Foreign-invested enterprises played good exemplary roles in respect of technology, management and the philosophy of business operation, etc., propelled the market forces and internalization of China’s economy and enterprises, promoted the formulation of a group of fresh industries with international competitiveness including electronic information, integrate circuit, light industry, textiles, household electrical appliances, common mechanical and electrical products, and so on..

(3) With the entirely implementation of the promises for China’s entry into WTO in the service industry, apparent progress has been made in the opening up to the outside world. By the end of 2005, a total of 71 foreign banks from 20 countries and regions have set up 238 business operative institutions in China. More than ten Chinese-invested commercial banks containing China Construction Bank, Bank of China, Industrial and Commercial Bank of China brought in overseas strategic investments, and at the same time China Construction Bank and Bank of Communications were successfully listed overseas. A total of 4 joint venture securities companies and 20 joint venture fund management companies were set up upon approval. On the basis of the promises for entry into WTO, the insurance industry has been opened to foreign-invested insurance companies in all regions and in all businesses except related statutory insurances. By the end of 2005, the number of foreign-invested insurance companies has increased to 40 companies and 93 head companies and branches. Foreign-invested enterprises have become an important part in the fields of logistics and commerce. In 2005, the foreign capital utilized in the service industry of China exceeded one fifth of the total amount of foreign investments in the year.

(4) Foreign loans increased steadily, which supported the construction of state key projects effectively. During the 10th Five-year Plan, the foreign preferential loans actually utilized throughout China totaled approximately USD 20.7 billion, which supported 150 key projects, including the reinforcing projects of the main dykes of the Changjiang River and the Yellow River, trunk line highways in Sichuan and other provinces, several trunk line railways from Hubei province to Chongqing, the coal-bed gas project in Shanxi province, pollution treatment along the basins of Huaihe River, the projects of the agricultural comprehensive development in the Central and Western Regions, etc. Emphasis was laid on the Central and Western Regions, which gained more than 70% of preferential loans when the foreign preferential loans being arranged. The financing channels and ways of international commercial loans took a feature of diversification. During the10th Five-year Plan, approximately USD 25.8 billion of international commercial loans (except loans granted by foreign-invested enterprises) have been borrowed in China, which mainly supported some urgently-needed projects on energy source and traffic in national economic development as well as partial industrial projects with short construction, good economic returns and ability to generate foreign exchange earnings through export, for example, the hydro-power station of the Three Gorges, Lingao Nuclear Power Station in Guangdong, Tianwan Nuclear Power Station, Qinshan Nuclear Power Station, etc., the purchase of airplanes by airline companies, and so on, helped introduce some important advanced technical equipment and key equipment which could not be manufactured in China, relieved the situation on unsuitable structure of sources of foreign exchange funds of domestic financial institutions, and enhanced the domestic institutions’ ability to optimally allocate funds .

(5) Capacities of managing foreign debts have been further enhanced, and the foreign debt scale is in step with the level of the national economic development and the situation of the international balance of payment. With regard to the tendencies which foreign debts of China took on in recent years, namely, the flow increased by times, the total scale grew rapidly, and short-term foreign debts took up a large proportion, the administrative department of foreign debts successively promulgated related provisions, effectively controlled the growth of foreign debts and adjusted the structure of foreign debts in a timely manner, so as to keep the debt service ratio, liability ratio, and debt-to-GDP ratio of China’s foreign debts within the safe lines that are accredited internationally.

(6) The regulations and policies on foreign capital utilization have been improved constantly, and the management level has been advanced gradually. On the basis of the requirements for the development of socialist market economy and China’s promises for entry into WTO, the related laws and regulations on foreign capital utilization as well as the rules and regulatory documents of all departments and localities have been completely cleaned up and amended. We have amended the Catalogue for the Guidance of Foreign Investment Industries twice, have amended the Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions, and have promulgated the Implementation Opinions on the Promotion of the Old Industrial Base in Northeast China to widely Open up to the Outside World . According to the spirit of the investment system reform of the State Council, the auxiliary reform of the management system of the foreign capital utilization was conducted, the approval procedures for foreign loan projects have been regularized, the approval system for foreign-invested projects has been changed into ratification system, the examination steps have been reduced, and the work efficiency has been improved.

However, during the 10th Five-year Plan, there were still some problems on China’s foreign capital utilization worth paying attention to: Firstly, the problem of "stressing quantity but ignoring quality", which has existed in absorbing foreign capital for long, is still prominent. Some local governments and departments absorbed foreign capital blindly without caring costs and pursued the quantity of foreign capital unilaterally, and the phenomenon that the state industrial policies were broken occurred frequently. Secondly, the leading enterprises in some industries were acquired and merged with foreign investments more and more frequently, and in a few areas, the symptom of foreign investment monopoly arose or even expanded rapidly, which might threaten the state economic security, particularly industrial security. Thirdly, the overall absorption scale and level of foreign direct investments in the Central and Western Regions were comparatively low, and the gap from the foreign direct investments utilization in the Eastern Regions has been further widened. Fourthly, the technology spillover of foreign-invested enterprises was not prominent, and some foreign-invested enterprise abused intellectual property protection, which did not favor the domestic enterprises’ independent innovations. Fifthly, the existing administration system of foreign capital utilization urgently needs to be improved, and a part of presently applicable policies are not favor creating an environment for fair competition between domestic enterprises and foreign-invested enterprises. Sixthly, a small number of projects of foreign loan utilization were not strictly administered, the fund utilization efficiency was low, and the debt repayment was difficult. Seventhly, the proportion of foreign debts with short term increased rapidly, and the potential risks of foreign debt also increased.

2. Guiding Ideology and Overall Strategic Objective of Foreign Capital Utilization of China during the 11th Five-year Plan Period

During the 11th Five-year Plan, the overall domestic and foreign environments in respect of foreign capital utilization that China faces still tend to be good, and have created conditions for China to improve the quality and level of foreign capital utilization, and to continue keeping the foreign capital utilization in a large scale, as well. The 11th Five-year Plan is, at the same time, also a period when the external environmental restrictions and internal risks of the economic development of China are centralized. For one thing, uncertain factors for the world economic growth still exist has, the global economic development is unbalanced, the international financial market is still likely to suffer from violent turbulence, the trade protectionism tendency is obvious, and the dispute between all countries for international capital becomes increasingly severe. For another, some prominent problems still exist there, for example, China’s energy sources and mineral resources are relatively insufficient, the ecological environment is frail, the mode of the economic growth is changed slowly, and the comparative advantages of labor force cost have been weakened.
 

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