China Tightens Foreign Investment Rules

Source : The Straits Times, Nov 9, 2007

It welcomes funding to help clean up the environment but puts limits on some sectors

SHANGHAI - CHINA has announced new rules to limit foreign investment in key industries, as it seeks to cool its overheated economy and clean up its damaged environment, state press reported yesterday.

In a wide-ranging directive published late on Wednesday, China’s key economic developmental agency identified sectors from real estate and financials to oil and rare metals as restricted or off-limits to foreign capital.

Overseas investments that can help China to protect the environment, cut pollution and develop renewable energy will be encouraged, according to the National Development and Reform Commission statement.

‘It should give a shot in the arm to efforts to save energy and protect the environment by encouraging greener use of foreign investment,’ the official China Daily newspaper said in an editorial.

Investment in high technology and advanced materials and equipment manufacturing will also be welcome, but those in production industries in which China has mature technologies and capacity will not be encouraged, it said.

The directive highlights Beijing’s latest policy initiative to restructure its export-driven economy, whose booming but lopsided growth has for decades relied on government and foreign investment to expand.

Under the guidelines, foreigners will be barred from investing in non-renewable mineral resources, such as tungsten, tin, antimony and molybdenum, as well as in small and mid-sized oil refineries.

Refining of copper, zinc, aluminium and rare earths will be restricted, and so will exploration for gold, silver and platinum.

Limits will also be placed on high-end real estate such as hotels and malls, property agencies and brokerages, as part of efforts to cool soaring real estate prices nationwide.

In the financial industry, the commission confirmed restrictions already in place in life insurance and asset management.

China’s spectacular economic growth of the last three decades has come at a heavy price to its environment, while surging exports have created a huge trade surplus that is at the forefront of trade spats with major economic partners.

BNP Paribas economist Chen Xingdong said the rules reflected a fundamental change in China’s strategies for foreign funds.

‘In the past, there was no control - China just opened the door, the window and let whatever foreign investment come in,’ he said. ‘Now, China doesn’t want just rapid growth; it also wants to pay attention to quality.’

Some analysts expressed concern for what they said looked like a turn towards protectionism.

‘The overall direction should be towards ‘more open’ industries rather than the opposite, ’said Citigroup economist Shen Minggao.

‘The government is worried about resources and the rise in commodity prices, and wants to make sure that scarce resources are under the control of domestic firms, but that’s the direction that we’re worried about.’

Recent policy measures have added to the impression that China is becoming more discerning about investment.

The government has rolled out rules that require state-level approval for mergers and acquisitions. China’s State Council, or Cabinet, has also released a list of strategic sectors of which the state intends to retain control.

Among them are military-related manufacturing, power production and grids, petroleum, gas and petrochemicals, telecoms, coal, civil aviation and shipping.


WHAT’S HOT

China will encourage overseas investments that can help to protect the environment, cut pollution and develop clean energy.

Investment in high technology and advanced materials and equipment manufacturing will also be welcome.


WHAT’S NOT

Foreigners are barred from investing in non-renewable mineral resources, such as tungsten and tin, as well as in small and mid-sized oil refineries.

Refining of copper, zinc, aluminium and rare earths will be restricted, and so will exploration for gold, silver and platinum.

Restrictions already in place in life insurance and asset management will remain.


STATUS QUO

The state intends to keep control of industries such as military-linked manufacturing, power production, petroleum, telecoms and shipping.


Copyright : AGENCE FRANCE-PRESSE