|
OECD-China Conference Produces Policy Messages to Address China's Regional FDI Imbalances
Xian, China, 12 October 2001
The OECD-China conference on the role of Foreign Direct Investment (FDI) in China's regional development produced a number of policy messages designed to help attract greater investment flows and redress a growing imbalance in FDI inflows to China's regions. Among other things, these call for improved transparency and an integrated approach to a range of policy areas that affect FDI.
The conference on Foreign Direct Investment in China's Regional Development: Prospects and Challenges took place in Xian on 11-12 October 2001. It was opened by Vice-Governor Zhang Wei of Shaanxi Province, Vice-Minister Long Yongtu of the Ministry of Foreign Economic Co-operation and Trade and Ambassador Marino Baldi of Switzerland representing the OECD Committee on International Investment and Multinational Enterprises.
Among the more than 100 participants in the conference were senior representatives and experts from most OECD Member countries, Chinese central and provincial governments, international organisations including the Asian Development Bank, the European Commission, the United Nations (UNIDO), the World Bank, the private sector and think-tank groups.
Vice-Minister Long stressed the importance of China's growing co-operation with the OECD in creating a business friendly environment for investors, both domestic and foreign. He also elaborated on government policies and projects undertaken as part of the "Go West" policy aimed at redressing the growing regional imbalance and attracting greater investment flows. Participants considered a number of possible follow-up actions by the Chinese Government, the OECD and other local and international partners on key policy messages that emerged from the conference deliberations.
Another OECD-China conference will take place in Xiamen in September 2002 to review progress in implementing these policy suggestions. In the meantime, participants in the Xian conference agreed on the creation of an "OECD-China Investment Network" composed of representatives and experts from China, OECD Member countries, the private sector, other international organisations and academia.
The main policy messages that emerged from the conference are as follows:
-- Enhance the attractiveness of China's central and western regions, in particular by investing selectively in infrastructure where competitive advantage can be realistically established as has been done in the coastal provinces. Identify sectors and industries with comparative advantages and analyse the regions' strengths and weaknesses. Base FDI policies to attract investors on the factors that firms consider in making investment location decisions.
-- Develop an integrated approach that addresses broader policy areas affecting regional development: competition, taxation, financial markets, environment, technology, labour market, trade, capacity building. Combine actions in economic, social and environmental sectors and between different bodies at local, regional, national and international level. Develop effective mechanisms for consultation among key stakeholders in the strategic phases of design, implementation and evaluation of these policies.
-- Develop a set of policy criteria by which to judge the investment environment and FDI attraction performances in each region.
-- Remove administrative barriers, improve transparency, and promote coherence between central and provincial policies. Reduced transparency provides opportunities for corruption, creates an investment risk and has the effect of a tax on foreign companies' operations.
-- Carefully consider the costs and benefits of incentives in light of the available evidence whether they are financial, fiscal or in kind. Such incentives can be costly in terms of government revenues without having much of an impact on investors' decisions.
-- Put emphasis on the presence of a reliable and transparent legal and regulatory environment. What is important in the long run is that firms with different ownership can compete on a level playing field under fair competition rules. Simplify the structure of provincial taxation (currently there are 27 taxes at the sole discretion of Chinese regions) and national/regional legislation.
-- Promote domestic market-oriented FDI. Foreign direct investors could find it worthwhile to locate in provinces other than the coastal areas on which they have until now been concentrating as an easier and less costly base for exports to the rest of the country.
-- Promote stronger linkages of FDI with the local economy. Encourage investments that build on local resources and initiative, while taking account of the opportunities afforded by globalisation in trade, technologies and finance. Foster public-private partnerships and small-firm networks as the most expeditious path to a dynamic small and medium size enterprise (SME) sector. Improve financial support services to SMEs and township and village enterprises (TVEs) including access to equity funding.
-- Encourage industrial districts. Mobilise domestic capital and overseas Chinese business communities, as they will have less concern about the risk of investing in the interior.
-- Create effective investment promotion agencies (IPAs). Focus on effective strategic planning and targeted policy actions supplemented by an appropriate organisational structure. Reconsider the relationship between IPAs and other institutions undertaking FDI related functions at the national and local levels.
|
