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Majority of Chinese FDI from Chinese companies headquartered in Hong Kong

September 9, 2010

Hailed as the most attractive FDI destination since the past two years and at least until 2012 by UNCTAD, China has set out to change its global image of a power-hungry, domestically gregarious and foreign company incongruous nation. While US, European and several ASian nations including Japan have expressed their dissatisfaction against this discrimination, foreign-invested enterprises account for 22 percent of tax revenues, 28 percent of added industrial value, 55 percent of foreign trade and 45 million jobs in China.

Responded to a growing wave of complaints from foreign investors, chambers of commerce and international politicians, over discriminatory government practices, regulatory barriers to foreign investment, government procurement rules that favour domestic companies and the country’s lack of a transparent and independent legal system, Xi Jinping, a vice-president and the heir apparent to Hu Jintao, told an investment forum that his government was taking “vigorous steps” to ensure China “remains the most appealing destination for investment in the world”.

While like the rest of China, Mr. Xi stuck to Beijing’s official position that things were not getting harder for foreigners, he adopted a conciliatory and sympathetic approach to the concerns of international investors. “As China’s open economy continues to develop, foreign investment in China will surely enjoy an even broader space and generate even higher profits,” he was quoted by the Financial Times.

While foreign direct investment (FDI) in China has been growing rapidly and is expected to exceed US$100billion this year, up from around US$90bn last year, analysts fear that a majority of the FDI flow is from Chinese companies headquartered in Hong Kong. According to reports, 60 per cent of foreign investment to China last year came through Hong Kong. A large portion of this money is being moved onshore by the overseas subsidiaries of large state-owned Chinese companies while another chunk is most likely “hot money” coming into the country disguised as FDI to evade capital controls, the FT reported.

While China is the biggest profit center for most multinational companies that have moved their headquarters to the mainland, in the past few months, a number of executives, including the chief executives of industrial multinationals General Electric, Siemens and BASF, have made comments on the tougher operating environment for foreign businesses in China.

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