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Preferential treatment for foreign investment to continue

BEIJING — China will continue its preferential policies towards foreign investors, according to Hu Jingyan, Director of the Department of Service Trade under the Ministry of Commerce (MOFCOM).
“As a developing country, China has not yet reached a point where it should remove preferential policies for foreign investment,” Hu was quoted as saying in an article published by Zhongguo Qiche Bao (China Automotive News).
The MOFCOM official was speaking at the “Second International Forum on Mergers and Acquisitions” held last April in Beijing. The auto industry in China has been one of the chief sectors attracting foreign investment. 
The table below shows that in 2004, the number of foreign investment projects in China’s auto industry reached 1,134, up by 31.1 percent year-on-year, with a total investment of US $6.11 billion. During 2002, a year that witnessed unusually swift growth in the nation’s auto industry, China became the country attracting the most foreign investment for building auto plants.
Trend for attracting foreign investment in automotive industry
Year                          1998       1999     2000     2001       2002         2003       2004
Projects (number)       116        169       213       329         578           865       1,134
Foreign investment ($)    61,233     82,703   86,088   93,039     170,814     414,198   611,156
Foreign funds used ($)    75,435     73,774   108,993 101,759   122,962     200,335   335,263
Source: Ministry of Commerce
“Foreign investment has not only brought capital to China, but with it the advanced equipment, technology, and management as well as new products going to the international market,” said Hu Jingyan. “It is certain that China wo’t change its policy during the period of 11th five-year plan, but the focal point has been shifted from quantity to quality.”
On the question of whether to remove preferential taxes for foreign enterprises, Hu explained that it was such an important policy issue that the State Council, through a corresponding legal process, should decide it.
“In the long run, the differences for preferential treatment between foreign and domestic companies will gradually diminish. However, time is needed in the process of evolution. Today, foreign investment is still badly needed in China,” Hu said. 
When talking about the question of “market for technology,” Hu took a very positive stance, though he was not specifically referring to the auto industry. 
“In a fiercely competitive market like the one in China, a foreign investor would find it very hard to join in the war of competition if he has no advanced technology and products. Many multinationals, therefore, have to introduce their state-of-art technology into China before their rivals do in order to gain larger market share.”
To address the quickly changing situation of China’s market, the government has made frequent adjustments to its policies on foreign investment. The “Catalogue for the Guidance of Foreign Investment Industries” has experienced several revisions since its initial publication in 1995.
In 2004 the State Development and Reform Commission (SDRC) and MOFCOM jointly issued a new catalogue with special regulations to encourage foreign investment in China’s auto industry, including whole vehicle and engine manufacturing, research, and development projects.
Among other policies that are preferential to foreigners are those included in the “Catalogue for Foreign Investment Industries in West and Central China.” The regulations set forth in this publication have accorded some foreign auto parts manufacturers in certain regions and provinces many benefits in China.

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