• Fri
  • Aug 29, 2014
  • Updated: 3:01pm

Service sector shines as FDI in China hits US$40b for January-April period

Central government keen to attract greater foreign direct investment in services, high-end manufacturing and environmental industries

PUBLISHED : Friday, 16 May, 2014, 11:52am
UPDATED : Saturday, 17 May, 2014, 12:56am

Foreign direct investment into China grew 5 per cent to US$40.3 billion in the first four months of this year, with the biggest share going to the nation's service industry, the Ministry of Commerce said yesterday.

"The figures have shown that foreign investors are generally taking an optimistic view of China's long-term economic growth despite some discouraging economic data in recent months," said Xu Gao, the chief economist with China Everbright Securities.

In a briefing, ministry spokesman Shen Danyang said the government is "cautiously optimistic" on the trade performance in 2014 and believes it can achieve the original target of 7.5 per cent growth it has set for the whole year.

"Chinese companies have been under bigger pressure in the face of competition from Vietnam, which has begun to enjoy preferential duties from the European Union since this year," Shen said.

"But we should also be aware that China has developed new advantages in technology, brand, quality and services based on the labour-intensive manufacturing model."

China's services industry continued to be a strong magnet for overseas investors, absorbing 56 per cent of foreign direct investment between January and April.

During the period, it attracted US$22.5 billion, up 19 per cent year on year.

In April alone, foreign direct investment rose 3.4 per cent year on year to hit US$8.7 billion.

Investment in the manufacturing sector though fell 11 per cent to US$14.5 billion.

For the first four months, Hong Kong remained a top investor in the mainland with US$27.8 billion, followed by Singapore and Taiwan with US$2 billion each.

Investment from South Korea, the fourth largest investor in China, rose at the quickest pace during the period, surging 139 per cent from a year ago to US$1.8 billion. Investment by the United States dropped 11 per cent to US$1.2 billion.

A total of 6,661 overseas enterprises set up business on the mainland during the period, the ministry said.

Despite the growth in foreign direct investment, China's non-financial direct outbound investment fell 12.9 per cent to US$25.7 billion in the first four months.

"This is likely due to the tightening of liquidity in the country and the pessimistic view by domestic investors over a slowing economy," Xu said.

In the first four months, 66.5 per cent of China's outbound non-financial investment went to seven economies: Hong Kong, Asean, the EU, Australia, the US, Russia and Japan. Investment in the seven totalled US$17.1 billion.

China's trading performance has improved in April, with both exports and imports recording minor growth compared to the declines seen in March.

The country is also increasing its support for the trade sector. The State Council said in a document on Thursday that a series of new measures, including more tax breaks, credit insurance and currency hedging options to exporters, will be launched.

The government wants to attract foreign direct investment to the services sector, high-end manufacturing, and environmental industries instead of into low-value added factories, and wants local firms to increase offshore investment.


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'In the foreign exchange market, the winner is always the one with the most capital --- the foreigners have much more capital than China.
Now, in the world foreign exchange market, the daily volume of transaction is about 4 trillion US dollar, while the total value of equities in the 58 major stock markets in the world is more than 60 trillion US dollar.
After the internationalization of the yuan, China can lose all her reserves in one day.
Arguing about the rise or fall of the yuan is a waste of time, because this can be controlled by the international capital.
Given China’s financial liberalization, it just takes 2 hedge funds to be able to control the rise or fall of the yuan.
Whether the yuan rises or falls, they are able to make money out of it.
The best hedge fund managers had all been hired by the foreigners, like Goldman Sachs.
China can’t afford to hire the best of them, and having lost lots of money as a result.
If China learns from the U.S., the American-style financial crisis will occur in China within a few years.
Japan had forsaken her own characteristic financial system, and adopted the American-style policy of financial liberalization, and failed.
Europe and the U.S. also failed.
China shouldn't strive to walk the same unwalkable road.'
'What really matters to the stabilization of the yuan isn’t whether China’s finance is liberalised, or how big is her FDIs or her trade volume, or how much reserves she owns --- all these conditions are realized in Japan, but the Japanese economy has still been stagnating for so many years.
What’s crucial is to fully develop and strengthen her own yuan economy.'
Again, from the same author:
'China can't cope with financial liberalization.
They don't have enough first-class qualified financial talents.
Even if they are all available, the country still can't manage effectively the all-powerful financial market.
Not even the United States can do so --- every time the Federal Reserve intervenes in the financial market, the result is almost always unsatisfactory.
If China fully liberalises the financial market, financial crisis will occur within 2 years, and the country will probably go bankrupt.
Now, China’s reserves of almost 4 trillion US dollar is actually controlled by the U.S., the money can’t be autonomously used by herself.
If the yuan can be freely transacted in the market, the U.S. can even more easily fully control it.'
According to the same Chinese author,
'Being overly dependent on foreign capital and foreign trade is hazardous to the economic health of China.
The country runs the risk of being gradually controlled by the foreigners.
Absorbing more foreign capital means enlarging the size of foreign trade.
Now about 70 percent of China's GDP comes from the foreign capital, no other country in the world can be in this state for long.
The longer the dominance of the foreign capital lasts, the weaker China will become in the future.'
I suddenly recall a sentence from a certain Chinese Tang poem:
' ... the chambermaid is sewing a wedding dress overnight not for herself, but for the daughter of her mistress.'
'In the beginning, when China set up the joint venture law, there was a nine-year restriction --- after 9 years, the venture belonged to China.
At that time, Deng Xiaoping stated clearly that China couldn't develop her economy by relying on the foreign countries.
The joint venture policy was only a measure of expediency --- making a concession of 9 years.
After 1989, the 9-year restriction was cancelled, and the foreign capital could exist forever.'
Can a country ever become a superpower by outsourcing her own industries and services to the foreigners ?
To me this is unheard of.
In China's recent proposed reforms, raising of the salaries of the teachers and protection of intellectual property rights are also unheard of.
(d) A large part of the money earned by China’s foreign trade sector has to be used to cure the country's own pollution problems, not to mention the need to fund the retirement pension of those workers working in the foreign companies.
(e) The US workers losing their own jobs naturally dislike China.
(If you don’t believe that China is being hated by so many foreigners, simply read the readers’ comments in the morning post and you’ll change your view.)
(From a Chinese book by Liao Zi Guang)
China should also pay more attention to developing her own industrial policy.
In China, the foreign capital has at least the following problems:
(a) The goods made in China are mostly exported and sold in the foreign countries.
The foreigners have no interest in caring about China’s domestic market and enlarging demand, and they are forever unwilling to voluntarily raise the wages rates of the Chinese workers.
(b) The foreigners’ money is actually China’s money.
They take the Chinese projects to the US financial market to raise fund.
But most of the money in the US comes from China, through China’s buying of the US treasuries.
Or they borrow from China’s banks, whose money comes from the Chinese people’s savings.
China’s local governments like to utilize the foreign capital, because, whether the FDI projects are successful or not, they don’t have to bear the responsibility.
China’s local banks simply gather the local people’s savings, lent to the banks in the big cities along the coastal areas, and in the process earning an interest of 5%.
Those money is ultimately lent to the foreigners.
(c) The foreigners won’t bring in the technology.
Say the factories in the US are relocated to China. The single-worker wage rate in the US can be used to hire several workers in China.
They made their fortune this way, why do they give China any useful technology ?
The FDIs in services means even less technology transfer --- a half-an-hour haircut 50 years ago still takes half-an-hour nowadays to finish.
One reason for the failure of the so-called "Shanghai Model" is that the city gave preference to the foreign capital, and discriminated against the local privately-owned businesses.
Shanghai even kicks out all the SMEs, in the name of 'generational replacement of products' !
The other reasons include the government’s intensive intervention and control of the economy, encouragement of the development of the property market, blindly caring only about regional GDP growth but ignoring the raising of home income, striving only for economic growth but not employment growth.
The city’s prosperity, basically a product of the government’s support, was in sharp contrast to Wenzhou, the city in southeastern Zhejiang province.
Wenzhou developed and prospered over the years through its internal vigor, not through foreign aid.
The “Wenzhou model” (which has to be regulated to some extent of course), which is based on individual private enterprises, can be said to be the development model with the highest degree of marketization and privatization.
The "Shanghai Model", an anachronistic legacy of the 1990s, reflects many of the economic problems right now in the country.
(From the Chinese book ‘How unique is China’s model’ )
There is only a single moon up in the sky --- the foreign moon is certainly not brighter than the Chinese one.
What the FDIs care about is not technology transfer, but China’s massive potential market.
The most conspicuous example of the failure of the market-for-technology strategy is China’s car industry.
Lots of foreign capital had been imported, but without much technology transfer.
The strategy can be said to be a complete failure.
From 1984-2000, China gave Volkswagen Santana ‘half of the empire’ of the car industry, only getting in return the technology which was obsoleted by the European Union in 1978.
Another example is America’s General Motors.
It’s not a very innovative company.
In 2005, the company suffered a loss of US$8.6 billion --- it's not a well-run business.
But such a company fared quite well in China over the years.
One reason is the lack of competition in the country's car market.
What activities are included in the "service" sector? It would be nice to know.




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