China’s Actual Use of Foreign Capital

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Nov. 27 – According to statistics released by the Ministry of Commerce (MOC) on November 6, the actual use of foreign capital in China has risen 120 percent from 2002 to 2011, with an average annual growth rate of 9.2 percent. In fact, China has been ranking first in this aspect among developing countries for the past 20 years.

Absorbing foreign capital has long been considered a key implementation under the basic opening-up state policy. Up until the end of 2011, more than 738,000 foreign invested enterprises (FIEs) have been established in China, bringing in more than US$1.2 trillion in foreign capital. In the investment forecast made by authorities such as the United Nations Conference on Trade and Development, China has been repeatedly defined as the optimal choice for multinational companies with their foreign investment plans.

There is no denying that the Chinese market effectively stabilized multinational direct investment during the Global Financial Crisis, and played an important role through the recovery process. Statistically speaking, the absorption of foreign capital only dropped 2.6 percent while global foreign investment experienced a 39 percent fall. In 2010, China realized a 17.4 percent growth rate in absorbing foreign capital, and the actual number of the absorbed foreign capital exceeded US$100 billion for the first time.

Additionally, it has been shown that foreign capital has been increasingly going into high-technology industries in China. For instance, foreign capital has been continuously invested in technology-intensive industries such as the electronic communication industry. More and more foreign investment is also being made in strategically emerging industries like new energy, new material, and energy-saving and environmentally-friendly industries. Referring to the statistics provided by the Ministry of Science and Technology, foreign-invested high-tech enterprises accounted for 23.8 percent of the total number of high-tech enterprises nationwide by the end of 2010.

Currently, FIEs have become an important element of the Chinese economy. In 2011, despite the fact that FIEs only constituted less than 3 percent of all the enterprises in China, they realized RMB22 trillion of industrial output, which is 26.1 percent of the total value of industrial output nationwide. It also brought more than RMB1.8 trillion of import and export volume, which accounted for 51.1 percent of the total number of the whole country. Furthermore, more than 45 million job opportunities were created by FIEs in 2011.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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