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Regional inward and outward investment analysis report 2015
(I) East China
(1) Recent policies of Beijing to promote inward
and outward investment
Since 2015, Beijing has actively participated in the economic globalization process and the implementation of the Belt and Road Initiative (BRI), vigorously promoted the comprehensive pilot program for further opening-up of the service sector and issued a series of policies to support and encourage inward and outward investment, broadening the scope of investment activities, improving the development environment and promoting coordination between attracting foreign investment and making overseas investment.
1) FURTHER OPENING-UP OF THE SERVICE SECTOR
TO PROMOTE TRADE IN SERVICES
In May 2015, the State Council of China approved the Comprehensive Plan of Beijing for the Pilot Program of Further Opening Up the Service Sector. According to the plan, priority was given to the further opening-up of six key areas and the goal was to form a new pattern for the comprehensive opening-up of Beijing’s service sector in line with international practices by relaxing market access control, moving forward with regulation reforms and improving the overall market environment.
First. Beijing relaxed restrictions on market access to attract foreign investment to key areas. It has taken steps to simplify the procedures for the settlement of foreign exchange capital for enterprises in Zhongguancun, attract multinational companies to set up joint ventures in Beijing and encourage foreign investment in service outsourcing. Beijing encourages Chinese and foreign cultural enterprises to establish joint ventures, allows foreign investors to set up wholly foreign-owned performing arts brokerage firms, and facilitates foreign financial institutions to set up branches, wholly foreign-owned or joint venture. With relaxed market restrictions, Beijing encourages foreign investment in business services, and in the transformation and reorganization of Chinese business services enterprises. Beijing will also gradually reduce limits on joint venture medical institutions and wholly foreign-owned not-for-profit hospitals.
Second, Beijing deepened the reform of its outward investment management system. It simplified the administrative procedures for outward investment by enterprises and adopted a registration-based management system. Beijing encourages Zhongguancun enterprises to set up overseas R&D institutions and make technology acquisitions overseas. It encourages investors to leverage their own advantages to carry out overseas investment and cooperation activities and supports enterprises to go global. Beijing also worked to promote the orderly outward investment and cooperation by service enterprises.
Third, Beijing enhanced its support for both inward and outward investment. It worked to improve the social credit environment, establish standards for market access and expand the import of high-level overseas talents in six key areas of the service sector. Beijing simplified the foreign exchange registration procedures for overseas investment activities, supported overseas mergers and acquisitions (M&A) by enterprises in Beijing and facilitated cross-border investment and financing. It offered more credit support for enterprises in key areas of the service sector in Beijing and facilitated customs clearance.
2) BETTER GUIDANCE AND SERVICES FOR OUTWARD
INVESTMENT TO BUILD ENTERPRISES’ CAPACITY FOR
The Implementation Plan of Beijing for Further Facilitating the Development of Enterprise Overseas Investment and Cooperation was issued on November 26, 2015. It requires that enterprises focus on BRI countries and regions, actively contribute to the construction of the three networks and industrialization in Africa, and make efforts to accelerate the further opening-up of Beijing's service sector and the going-global of its competitive industries, so as to enhance outward investment and cooperation, promote the transformation of the economic growth pattern, and lay a solid foundation for the building of a high-tech, precise and advanced economic structure in Beijing.
First. Beijing strives to open up new space for the international development of local enterprises. It enhanced project matchmaking through international investment and trade platforms, guided enterprises to participate in the construction of major infrastructure projects in BRI countries and promoted cooperation with BRI countries on the development of traditional energy, clean and renewable energy, and the establishment of industrial parks or economic and trade parks.
Second, Beijing stepped up the efforts to build itself into a global center for science and technology innovation. It has enhanced cooperation with overseas high-tech parks, industrial bases, high-end technology R&D enterprises and modern equipment manufacturing enterprises, set up overseas joint R&D centers, laboratories and technology business incubators (TBIs) and strengthened cross-regional
Regional investment analysis report 2015 65 cooperation between its high-end industrial areas and global science and technology enterprises and financial institutions.
Third, Beijing strengthened its cultural exchanges and cooperation with other countries. It promoted the development of trade in cultural products and services, created new models for overseas promotion of cultural services and supported local cultural enterprises to expand overseas investment and cooperation.
Fourth, Beijing accelerated the going-global of its service sector. It supported enterprises engaged in science and technology services, business services, and featured medical sendees to march further into the global market.
Fifth, Beijing deepened overseas cooperation for the development and processing of energy resources. It facilitated cooperation in the fields of agriculture, forestry, animal husbandry, fishing and the production and processing of agricultural products, supported competitive enterprises to actively engage in the exploration, development and processing of energy resources and encouraged new energy enterprises to move faster to build overseas energy bases.
Sixth, Beijing promoted the building of overseas economic and trade cooperation zones. It encouraged the building of overseas economic and trade cooperation zones with investment from Beijing enterprises, and supported automobile manufacturing giants to invest and build automobile industrial parks in Kazakhstan, Thailand and India.
Seventh, Beijing supported the development of outward investment platforms. It supported competitive enterprises to set up outward investment operation centers or management platforms and encouraged enterprises to set up professional service organizations overseas.
Eighth, Beijing promoted the transformation and upgrading of overseas project contracting businesses. It encouraged relevant enterprises to seize the opportunity of the development of the "three networks and industrialization" in Africa to promote overseas project cooperation by adopting PPP (Public-Private Partnership), BOT (Build-Operation-Transfer), and SOT (Subsidize in Building, Operate and Transfer) models besides the Engineering Procurement Construction (EPC) model.
Ninth, Beijing worked to promote the orderly and healthy development of overseas labor cooperation. It continued to expand the scale of overseas labor cooperation, especially the export of skilled labor in the transportation, healthcare, catering, IT and education industries, strengthen the management of overseas labor cooperation and improve coordination between government bodies, intermediaries and relevant enterprises in terms of labor management.
Furthermore, in October 2015, the State Council issued the Decision of the State Council on Temporary Adjustment of Relevant Administrative Review and Approval Matters and Special Access Administrative Measures for Beijing, providing legal basis for the pilot program. Soon after that, 11 opening-up measures and 22 new reform measures were rolled out. In December 2015, Beijing Customs published Several Measures of Beijing Customs to Support the Comprehensive Pilot Program for Further Opening Up the Service Sector in Beijing. It includes 17 measures to support the development of some key areas of the service sector, build air and port trade facilitation zones and launch innovations related to thecustoms supervision and control system, providing strong support for the comprehensive pilot program for further opening-up of the service sector in Beijing.
In 2015, giving full play to its comprehensive advantages, Beijing focused on expanding the opening-up of its sendee sector, worked to bring in high-end foreign resources and combine foreign investment with the import of advanced technologies, management expertise and high-quality talents, promoting its transformation and development. At the same time, in line with the going-global strategy of China, Beijing strengthened macro guidance for enterprises to grasp favorable opportunities created by further opening-up and by changes in the domestic and foreign environments, and carry out overseas investment initiatives based on their own advantages.
i) Utilization of foreign capital in Beijing. A total of 1,386 new foreign enterprises were established in Beijing in 2015, an increase of 5.2% year-on-year. The amount of foreign capital actually utilized exceeded US$10 billion for the first time, reaching US$13 billion, an increase of 43.8% over the previous year and a record high. This was the fourteenth consecutive year when Beijing’s actual utilization of foreign capital increased and the total amount utilized over the years exceeded US$100 billion, accounting for 10% of the national total.
Beijing has seen the structure of foreign investment improved as finance, science and technology and other industries of the service sector opened up further and much more investment was channeled to key areas. As the first pilot city for further opening-up of the service sector in China, Beijing attracted much investment to its science and technology services, leasing and business services, financial services, wholesale and retail services, information transmission and computer services and software industries (the six major industries). In 2015, Beijing welcomed 1,350 new foreign enterprises in the service sector, an increase of 5.4% year-on-year. The utilization of foreign capital reached US$12.32 billion, an increase of 55.4% year-on-year, accounting for 94.8% of the total foreign capital utilization of the city. The number of new foreign investment projects launched in the six major industries reached 1,068 and the actual utilization of foreign capital was US$9.55 billion, up 10.2% and 62.5% respectively and accounting for 77.1% and 73.5% of the total of Beijing respectively. Foreign investment in financial services and science and technology services increased by 15.7 times and 14% respectively and accounting for 56.4% and 7.6% of the total of Beijing respectively. In addition, foreign investment in life services has been active, with 36 health and medical projects, 51 sports and entertainment projects and 55 catering and resident service projects introduced within the year.
Foreign investment was made in more ways, including the M&A of state-owned enterprises (SOEs), additional capital for domestic non-foreign enterprises and cross-border RMB investment. In 2015, Beijing attracted US$9.07 billion of
Regional investment analysis report 2015 67 foreign investment through the M&A of SOEs, accounting for 69.8% of the total; a total of 962 enterprises in Beijing brought in US$18.79 billion of foreign investment through additional capital, accounting for 58.1% of the total contractual foreign investment in Beijing; another 38 enterprises made cross-border RMB investment totaling RMB4.66 billion, accounting for 5.8%.
The quality of foreign investment projects has been improved and a growing number of high-end functional institutions such as headquarters and R&D institutions have been set up in Beijing. In 2015, nine new foreign companies set up headquarters in Beijing, making a total of 268, and these included 155 regional headquarters of multinational companies; the number of foreign-funded R&D institutions reached 532, with 29 new ones established in 2015. In total, 38 headquarters and R&D institutions of multinational companies were set up in Beijing within the year, bringing the total number to 800. By the end of 2015, 20 new investment projects were launched in Beijing by Fortune Global 500 companies, bringing the total number to 718 projects by 287 Fortune Global 500 enterprises.
The scale of foreign investment projects grew significantly and large projects became much larger. There were 75 large projects valued at over USS10 million and the total investment involved registered US$12.1 billion, an increase of 62.4% year-on-year. This amount accounted for 93.1% of the total foreign investment in Beijing in the year, and represented an average investment of US$160 million, two times higher than the previous year. In particular, 68 out of the 75 large projects were in the service sector, involving a total investment of US$11.53 billion, an increase of 77.9% year-on-year and accounting for 88.7% of the total. The total investment of projects over US$100 million amounted to US$10.55 billion, an increase of 1.7 times year-on-year and accounting for 81.2% of the total.
The sources of investment were relatively concentrated. The Hong Kong SAR contributed US$9.93 billion, mainly in financial services, science and technology services, business services and information services, accounting for 76.4% of the total foreign investment in Beijing. The British Virgin Islands (BVI) contributed US$1.9 billion, 14.6% of the total.
ii) Overseas investment of Beijing enterprises. In 2015, Beijing’s total outward foreign direct investment (OFDI) in 581 enterprises in 57 countries and regions reached US$9,555 billion, an increase of 74.95% year-on-year.
Outward investment projects in the forms of M&A and equity participation grew rapidly. In 2015, the number of M&A and equity participation projects of Beijing enterprises was 87 and the contractual outward investment reached US$19.97 billion, an increase of 117.5% and 456.3% year-on-year respectively, and their proportion in the city’s total contractual outward investment increased from 32.1% to 61.1%. In addition, there were 131 new outward investment projects and 44 additional capital projects and the contractual outward investment amount of these two categories reached US$8.69 billion and US$4.01 billion respectively, accounting for 26.6% and 12.3% of the total contractual outward investment respectively.
Large projects played a significant role. In 2015, Beijing had 40 outward investment projects that involved more than US$100 million of contractualoutward investment, making a total of US$29.88 billion and accounting for 91.5% of the total. Unisplendour Corporation subscribed the additional equity of Western Data with a contracted outward investment of US$4,095 billion, the largest outward investment project of Beijing in recent years.
The destinations of Beijing’s outward investment were rather concentrated. In 2015, Beijing enterprises invested in 173 projects in five countries or regions, including the Hong Kong SAR, the United States, the British Virgin Islands (BVI), the Cayman Islands and the Republic of Korea (ROK), 66% of the total number of outward investment projects; and the investment value of these projects reached US$18.73 billion, accounting for 57.3% of the total.
2) PROBLEMS OF INWARD AND OUTWARD INVESTMENT
In terms of the utilization of foreign investment, restricted by land supply, resource environment and labor costs, Beijing’s traditional advantages in attracting investment weakened and the practice of attracting investment with the advantage in costs of factors was no longer effective. More and more foreign investment projects were wholly foreign-owned, with weak technology spillover effect; the city had limited capacity for taking over industries transferred from other places in the world. The agglomeration effect of foreign headquarters was weak and some headquarters were clearly being hollowed out. Beijing’s surrounding areas offered little support for industrial development in Beijing and the business culture is underdeveloped.
In terms of outward investment, enterprises must improve their investment management as they lack experience in the management of large-scale investment and large-scale capital operation and have no suitable human resources management mechanism for such projects. Outward investment faces high risks and investing enterprises are vulnerable to all kinds of risks regarding finance, politics and businesses, given the various systems and mechanisms, policy environments and economic foundation of different countries. Effective strategic cooperation among different enterprises should be strengthened and “service communities” in the form of enterprise alliances, chambers of commerce and professional institutions should be built.
3) PROSPECTS FOR 2016
During the 13th Five-Year Plan period (2016-2020), Beijing’s inward and outward investment is expected to reach US$100 billion with both FDI and OFDI exceeding US$50 billion. Foreign investment in the service sector will account for over 85% of the total FDI. In 2016, Beijing’s actual utilization of foreign capital is expected to be more than US$13 billion, the same as or slightly higher than that of 2015, an increase of 42.5% over the annual average during the 12th Five-Year Plan period. The growth of OFDI will probably slow down and the total OFDI of the year will be above US$10 billion, an increase of about 10% year-on-year.
i) Utilization of foreign capital. In 2016, Beijing will work to attract investment in key areas of the sendee sector identified in the pilot program for further opening-up of the service sector, and focus on the exemplary role of inward investment in areas closely related to people’s living standards, industrial upgrading, structural transformation, and innovation. It will strive to introduce international brands of featured catering and retailing, encourage foreign investment in life sendees such as elderly care and health services and support foreign investment in the transformation and upgrading of traditional industries and the development of urban logistics systems. Beijing will encourage foreign investment in emerging industries such as software and information services and integrated circuit design; it will create a better business environment to attract high-level overseas talents and make its environment more suitable for work and life. At the same time, Beijing will seize the great opportunities brought by building the sub-center and the new airport, and hosting the 2022 Winter Olympics, exploring new growth points for foreign investment utilization.
ii) Outward investment. In 2016, Beijing enterprises will invest in more destinations. Outward investment will go to more than 110 countries and regions on six continents and show a bipolar pattern of growth, that is, investment will grow rapidly in both developed economies such as the United States and less developed regions such as Africa. Beijing will provide more and better services for enterprises making outward investment, establish relevant information service platforms and organize matchmaking events for investment and cooperation projects in BRI countries and regions.
In 2015, Beijing enterprises invested in 16 projects in BRI countries and the contractual outward investment reached US$3.75 billion, accounting for 11.5% of the total. The city’s investment in BRI countries concentrated in industries such as power, aviation and environmental protection infrastructure, mostly in Asian countries. In 2015, Beijing enterprises invested in 49 projects that involved BRI countries, with new contracts signed for a total outward investment of USS 1.211 million and a turnover of US$899 million in Asia, Europe and Africa. The majority of these projects are in Asia.
2) PROSPECT FOR INVESTMENT IN AND FROM BRI
COUNTRIES IN 2016
In 2016, Beijing, as a key city in the China-Mongolia-Russia Economic Corridor and an important window of North China towards the world, will make strategies according to national policies, its own advantages and the needs of BRI countries, while reinforcing the foundation and highlighting important tasks. It will form hierarchies of outward investment projects in terms of the destination countries, fields and industries. It will rely on leading and high-quality enterprises, focus on the areas of infrastructure, science and technology, economic and trade, industrial investment, financial services, people-to-people and cultural exchanges and energy resources to launch cooperation with counterparts in BRI countries and make its contribution to the implementation of the BRI.