Facts on the ground prove that media claims about China's investment environment are far from true

The Western media recently claimed that China's investment environment is deteriorating, pointing out that, due to China's increasing "discrimination" against foreign investment and the "worsening" regulatory environment, the foreign-funded enterprises were facing more difficulties in investing and operating in the country.

Relevant facts and data, however, bear out that, rather than deteriorating, China's investment environment has been constantly improving.

According to a report released by the United Nations Conference on Trade and Development (UNCTAD) on January 19 this year, due to the severe impact of the international financial crisis, global foreign direct investment (FDI) inflows are estimated to have fallen by 38.7 percent in 2009, of which developed economies registered a fall of 41.2 percent, while developing countries saw a decline of 34.7 percent.

FDI inflows are estimated to have declined by 29.2 percent to the European Union, 57 percent to the US, and 53.4 percent to Japan. And, for developing economies, Brazil registered a fall in FDI of 49.5 percent, Russia 41.1 percent and India 19 percent.

In stark contrast, China has performed well in terms of attracting FDI in 2009 with only a slight decline of 2.6 percent. And, since August 2009, China's utilized foreign investment has been mounting steadily.

FDI inflows to China, which went against the global declining trend to some extent, could fully prove that the nation's overall investment environment is endorsed by foreign businesses.

According to the 2010 Special Report on the State of Business In China released by the American Chamber of Commerce, 71 percent of US enterprises in the country reported profits in 2009 and 46 percent reported comparatively higher China operating margins in 2009 than they saw worldwide.

With regard to the five-year optimism among US companies in China, 91 percent of companies reported that their outlook was optimistic, rebounding to the 2007 level.

More than 75 percent of companies believed that China remains a top-three priority in their company's global investment plans for 2010 and nearly 80 percent of American businesses in China planned to expand investment this year.

In recent years, with production factors such as labor, resources, land and environment becoming increasingly scarce, the cost factor is in catch-up mode.

Against this background, the main reason why foreign companies in China could report good profitability and maintain confidence in investment is that the investment environment here is improving, with reduced transaction costs for foreign businesses. This has enhanced the attractiveness of the nation's overall investment environment.

"The State Council Proposal on Further Improving the Work of Using Foreign Investment" released on April 6 put forward that China will further expand the scale of opening up, optimize foreign investment structure, promote diversified ways to attract foreign investment, deepen the reform of foreign investment management system and create a favorable investment environment.

This could be considered as the most explicit signal that the nation's investment environment will be further improved, as well as the most effective response to the accusation of deteriorating investment environment in China.

However, two points need to be clarified as far as the process of improving investment environment in China is concerned.

First, it needs time to optimize the investment environment in China, especially when it comes to improving the related institutions and regulations. Implementing the central government's regulations at various local government levels cannot be done overnight.

During this period, it is inevitable that foreign investors might encounter some dissatisfaction. Since embracing reform and opening up policies, China has shown great sincerity in attracting foreign investment and has amended the Catalogue for the Guidance of Foreign Investment Industries five times.

The scale of opening up is being constantly expanded. We believe that the general trend of China's improving investment environment will not change and the investment environment will definitely optimize gradually.

Second, to improve investment environment needs not only that China is sincere toward foreign investors, but also understanding and respect from their foreign counterparts, including foreign investors and media.

For foreign enterprises, abiding by the Chinese law, custom and culture is the most fundamental business ethic. As it is said in the Book of Rites - when you come to a new place, you should ask what is taboo first; when you come to a new nation, you should know the customs first; when you come to a new family, you should ask what is forbidden first.

Meanwhile, in the face of investment barriers, foreign investors could seek resolution through reasonable channels in coordination with the concerned departments.

If they merely resort to complaining about the investment environment and bad-mouthing the Chinese economy, which are then magnified by the Western media, it might delay the process of improving investment environment in China and will finally damage their own interests.

The author is an assistant researcher at the Institute for External Economic Policy Studies, National Development and Reform Commission.

(China Daily 05/18/2010 page8)