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Preface

Opening to the outside world is a fundamental policy of China and the only way for a country to prosper. As is well proven in China as well as elsewhere, opening brings progress while isolation leads to backwardness. The communiqué of the Fifth Plenary Session of the 18th CPC Central Committee regards opening-up as an important component of the five development ideas, pointing out that “to stay oriented to openness and development, we must go with the trend of closer economic integration into the world economy and pursue a win-win strategy of opening-up, and develop an open economy at a higher level.” The Outline of the 13th Five-Year Plan for National Economic and Social Development of the People’s Republic of China proposes that during the 13th Five-Year Plan period, efforts need to be made to "comprehensively advance bidirectional opening-up, facilitate the orderly flow of domestic and international factors of production, the efficient allocation of domestic and international resources, and the deep integration of Chinese and foreign markets, and work faster in cultivating new international competitive edges.” Promoting two-way opening-up, especially in terms of bilateral investment, and constantly boosting the utilization of foreign capital and Chinese investments abroad is an important part of the efforts toward all-round opening-up in the new era.

In 2015, China’s economy maintained a medium-high growth rate of 6.9% despite the general downturn of the world economy, making its due contribution to the growth of the world economy. China’s inward and outward investment, which fared satisfactorily, exhibited six new features.

1. Both foreign investments in China and Chinese investments abroad are the second largest in the world. For the first time, China’s rapidly growing direct investments abroad exceed investment inflows into the country.

In 2015, the amount of foreign investment actually used in China was US$135.577 billion, up 5.51% from 2014 - a growth rate 1.8 percentage points higher than in 2014. Meanwhile, China’s direct investment abroad was US$145.67 billion, up 18.3% from 2014 - a growth rate 4.1 percentage points higher than in 2014. Experiencing the thirteenth consecutive year of growth, China’s direct investment abroad was now 54 times higher than in 2002, representing an average annual growth rate of 35.9%. In 2015, ranking second in

Preface ix direct investment outflows (after the United States) and third in foreign investment inflows, China registered a net capital outflow of US$10.07 billion, becoming the net exporter of capital for the first time.

During the 12th Five-Year Plan period (2011-2015), China received 1.5 times more foreign investment and invested 2.4 tunes more abroad than in the previous five-year period, indicating a new stage in terms of its openness and capacity of international development.

2. While service has become a key area of China’s inward and outward investment, there emerges a new trend that among all the sectors, China’s tertiary industry receives a higher proportion of foreign investment while the secondary industry is an increasing focus for Chinese investment abroad.

In 2015, the ratio between foreign investments in China’s three industries was 1.13: 32.16: 66.71. Compared with 2014, the proportion was 0.05 and 2.04 percentage points lower for the primary and secondary industries, and 2.09 percentage points higher for the tertiary industry. The industries receiving the largest foreign investment are, in sequence, manufacturing, real estate, finance, and wholesale and retail, accounting for 77.34% of the total foreign investment in China. That China’s industrial structure varies in almost the same way as the sectoral composition of foreign investment shows the important role of foreign investment in promoting the upgrading of the industrial structure.

In 2015, China’s outward foreign direct investment (OFDI) covered 18 major categories of economic activities, and the amount of OFDI in the three industries of the economy stood in a ratio of 1.74: 27.5: 70.76. Compared with 2014, the OFDI in primary and secondary industries increased by 0.44 and 2.2 percentage points respectively, while the amount in the tertiary industry dropped by 2.64 percentage points. The top sectors for investors, in descending order of investment, were manufacturing, which received US$19.99 billion, a year-on-year increase of 108.5%, with US$10.05 billion going to the equipment manufacturing, accounting for 50.3% of the manufacturing sector; finance, with an investment of US$24.25 billion, up 52.3% year-on-year; information transmission software and information services, with an investment of US$6.82 billion, up 115.2% year-on-year.

3. Hong Kong remains the largest and most stable source and destination for investment in and from the Chinese Mainland, and differentiation emerges as a new feature of two-way investment between China and the developed economies.

In 2015, the sources of inward investment in the Chinese Mainland and the destinations of its outward direct investment were mainly in Asia, accounting for 82.32% and 74.4% of the investment inflows and outflows. The investment from and into Hong Kong accounted for 63.7% and 61.7% respectively, at basically the same level as in 2014.

In 2015, while the number of business investors from the United States and 15 EU countries grew by 5.53% and 11.9%, respectively, the value of investment from the United States fell 11.8% from a year earlier and investment from the EU grew by 3.55%. In 2015, China’s direct investment grew only 5.7% in the United

States, while investment in the European Union and Australia fell 44% and 16%, respectively, well below the double-digit growth rate of the same period last year. This shows that although China participates more closely in international division of labor, cooperation and competition in high-end industries due to its increasing economic strength and improving performance of Chinese enterprises, the increasing political, market and environmental risks have become an important factor affecting the steady rise of China’s outward investment.

4. While east China remains the most important region in both the country’s inward and outward investment, the west and the central regions have played an increasingly important role.

In 2015, east China was still a focus in China’s inward and outward investment landscape. The region hosted 88.41% of all the foreign-funded companies in China and received 78.09% of the investment inflows. By contrast, the central region reported only about 7.04% and 7.7%, and the western region 4.52% and 7.34%. Despite the low shares, some central and western provinces have fared well in this regard. For example, in central China’s Anhui Province and Hunan Province, the foreign capital received was US$13.62 billion and US$11.56 billion respectively, up 10.4% and 12.7% respectively; OFDIs of the two provinces rose 1.1 times and 55.9% to US$970 million and US$1.48 billion respectively, both of which were significantly higher than the national average. In western China’s Yunnan Province and Xinjiang Uygur Autonomous Region, the foreign capital utilized was US$2.99 billion and US$450 million, an increase of 10.6% and 8.5% respectively; and OFDI rose by 30.4% and 37% to US$1,344 billion and US$1,102 billion respectively, both growth rates well above the national average. This shows that the development of the central and western regions proposed in the Belt and Road Initiative (BRI) has gradually become China’s new economic growth pole.

5. The diversification of investors and investment methods has become a prominent feature of China's inward and outward investment.

In 2015, wholly foreign-owned enterprises, Sino-foreign joint ventures, partnership and joint-stock entities became the main forms of enterprises using foreign capital in China. Among them, 90% were wholly foreign-owned and Sino-foreign joint ventures. In 2015, China’s outward investment was made mainly by the limited liability companies, while diversified investors also included private enterprises, joint-stock enterprises, individuals and collective entities. China’s state-owned enterprises accounted for 50.4% of FDI outflows, down 3.2 percentage points from the same period in 2014, while private-sector enterprises accounted for 49.6%, indicating their growing importance in the go-global drive. At the same time, China's outward investment also takes diversified forms including M&A, equity investment, earnings reinvestment and debt investment.

6. Two-way investment between China and other countries along the Belt and Road has entered a new stage, and international cooperation in industrial capacity and equipment manufacturing has become a new focus in China’s outward investment.

In 2015, Chinese enterprises made direct investment in 49 BRI-related countries, with a total worth of USS 18.93 billion, an increase of 38.6% year-on-year. These countries mainly included Singapore, Russia, Indonesia, United Arab Emirates, India, Turkey, Vietnam, Laos, Malaysia and Cambodia. In 60 BRI-related countries, Chinese enterprises have signed 3,987 project contracts with a total worth of US$92.64 billion, accounting for 44.1% of all the foreign project contracts China had signed in the same period, representing a year-on-year growth of 7.4%; the turnover achieved was US$69.26 billion, accounting for 45% of the total, up 7.6% year-on-year. In 2015, businesses from the countries along the Belt and Road set up 2,164 operations in China, an increase of 18.32% over the same period of 2014; the amount of foreign investment actually used was US$7,789 billion, up 25.34% over the same period of 2014 and much higher than the national level in the same period. This fully shows how the BRI has offered great opportunities and driven the robust growth of China’s investment in countries along the Belt and Road.

In 2015, China’s outward direct investment in transportation, electricity, communications and other industries where it had a competitive edge totaled US$11.66 billion, up 80.2% year-on-year. By the end of 2015, there were 75 overseas economic cooperation zones being promoted by Chinese enterprises, of which more than half were processing and manufacturing parks closely related to capacity cooperation, with a cumulative investment of US$7.05 billion. Those economic cooperation zones were home to 1,209 enterprises. Together they produced USS42.09 billion of products, and paid USS 1.42 billion in taxes and other levies to the host countries, which has led to the transfer of excess capacity of traditionally advanced industries such as textile, clothing, light industry and household appliances. Overseas investment and contracting work led to the rapid growth of equipment exports, and the revenue from the export of large-scale complete sets of equipment increased by more than 10% year-on-year. Through international capacity cooperation, Chinese enterprises optimize the distribution of their operations around the globe, bring domestic equipment, technology, services, technical standards and brands to other countries, and promote the adjustment and optimization of China’s economic structure. This shows that China’s efforts to promote international capacity and equipment manufacturing cooperation continues to show results and that international capacity and equipment manufacturing cooperation is becoming a new highlight in China’s outward investment.

Despite the achievements, we should be clearly aware that there are still many problems in China’s inward and outward investment. In terms of inward investment, China should further improve the investment environment, improve the effectiveness and efficiency of foreign investment utilized, attract and guide foreign investment to better serve the transformation of China’s economic growth mode and industrial structure upgrading. In terms of outward investment, investing abroad is relatively new for Chinese enterprises, who thus still need more experiences. Such risk factors as politics, economy, market, culture, diplomacy and human resources in the wide range of host countries around the world would increase the uncertainty and difficulty of the outward investments of Chinese enterprises. Moreover, many new situations and problems may arise in the future, and it is particularly important for Chinese investors to strengthen the understanding of the national conditions, laws and markets of the host countries and constantly accumulate experience. Only by strengthening the ability of international operations can they better adapt to the new developments in outward investment.

The BRI Inward and Outward Investment Series, commissioned by the International Cooperation Center of the National Development and Reform Commission, contains investment information and guide to promote China’s inward and outward investment. The main features of the series are as follows: first, it provides an account of China’s inward and outward investment at the national and local level in 2015, and helps readers better understand developments in China’s inward and outward investment; second, it brings together the latest policies concerning international cooperation in industrial capacity and equipment manufacturing, and shows investors the new developments in China’s opening-up and investment policies; third, it contains key country reports on international industrial capacity and equipment manufacturing cooperation, and helps investors deeply understand the conditions of the host countries, grasp the market trends and make investment decisions; fourth, it provides case studies of international capacity and equipment manufacturing cooperation at the local and corporate level, as well as key industry research reports, to provide systematic and multifaceted information for investors.

I believe the series of books will provide readers with a comprehensive picture of China’s inward and outward investment landscape, better promote the construction of the Belt and Road, promote healthy and orderly development of international capacity and equipment manufacturing cooperation, improve the international operations of Chinese enterprises and boost the economic and trade ties between China and other countries.

Xu Shaoshi

Former Director of the National Development and Reform Commission

 
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