Shandong

With the continuous implementation of the BRI, Shandong showed a favorable trend in opening-up and remained active in inward and outward investment. In 2015, the province approved 1,509 foreign enterprises, a year-on-year increase of 11.6%. Contractual investment amounted to USS20.04 billion, up 25.7%. The foreign investment actually used was US$16.3 billion, up 7.3%. There were 589 overseas investment enterprises and institutions registered and approved across the province, with the investment from the Chinese side totaling US$15.6 billion, up by 12.4% and 148% respectively. Overseas investment enterprises with actual investment numbered 441, with US$5.78 billion invested from the Chinese side.

• (1) Inward and outward investment of Shandong in 2015
• 1) GROWTH IN INWARD AND OUTWARD INVESTMENT
• i) FDI continued to grow steadily. In 2015, the Hong Kong SAR was a major source of foreign capital in Shandong, with an amount of US$7.55 billion actually used in the province, accounting for 46.3% of the total. Shandong saw strong growth in contractual and actual foreign investment from the Republic of Korea, Japan and the EU. The financial sendees industry, scientific research and technology industry and information software industry played a significant role, with the actual foreign investment increased by 48%, 43.6% and 5.3 times respectively. In particular, foreign investment in the financial services industry increased rapidly, with contractual foreign investment up by 87.8% to US$3.27 billion, ranking first in the service sector.

ii) Enterprises quickened their pace to go global. In 2015, Shandong enterprises actually invested US$5.78 billion overseas. As the number of enterprises engaged in international capacity and equipment manufacturing cooperation grew and more such projects were launched, the investment increased accordingly. Specifically, Chinese investment rose by 2.7 times to US$1.68 billion. The investment in BRI countries grew rapidly. The filed and approved Chinese investment in BRI countries stood at US$5.02 billion, an increase of 78.5% year-on-year.

2) INDUSTRY AND COUNTRY DISTRIBUTION OF INWARD AND

OUTWARD INVESTMENT

In 2015, in the Chinese investment filed and approved for Shandong, the new contractual amount of overseas projects amounted to US$11.62 billion with the turnover reaching US$10.17 billion, up 14.3% and 10% respectively. A total of 60,764 laborers were dispatched overseas, a rise of 1.4%.

i) FDI in different industries in Shandong. To be specific, in 2015, FDI in the primary industry decreased sharply by 33.3% year-on-year, that in the secondary industry increased steadily by 7.3% and that in the tertiary industry increased rapidly by 11.8%. See Table 2.5 for details.

ii) FDI from different countries (regions) in Shandong. In 2015, FDI in Shandong achieved a steady growth of 7.3% year-on-year on the whole, but varied in specific amount from different regions. FDI from South America saw the fastest growth at 89.8% year-on-year, while that from North America incurred a most obvious decline of 27.7% year-on-year. See Table 2.6.

Hi) Overseas investment. Overseas investment was unbalanced in Shandong. Specifically, Qingdao’s overseas investment grew at the fastest rate of 22.7% year-on-year while that of Zaozhuang, Taian, Linyi and Dezhou grew slowly by less than 1% year-on-year, and that of Laiwu was zero. See Table 2.7.

3) CHALLENGES AND OPPORTUNITIES

The world economy is expected to continue with a slow recovery and there are still many uncertain and unstable factors in the domestic and overseas economic environment, resulting in many challenges for Shandong’s utilization of foreign capital and overseas investment. First, considering an unstable foundation of international economic recovery, the external environment for foreign capital utilization and overseas investment is complex. Economic growth in advanced economies fluctuates at low positions, with endogenous driving force remaining weak, and emerging economies generally have slow economic growth. Some countries are facing the most difficult situation since the financial crisis. Second, with the signing of the TPP agreement, the international investment and trade rules are undergoing great changes, and Shandong is facing new challenges in its effort to expand the utilization of foreign capital. Third, commodity prices continue to fluctuate, and outward investment enterprises are facing operational risks. Fourth, foreign preferential loans have been reduced, along with increasing difficulties in application.

Regardless of these, there are still many opportunities for Shandong to expand its utilization of foreign capital and overseas investment. First, the BRI provides powerful support for enterprises to go global. Second, the in-depth reform of foreign-related systems and mechanisms is conducive to accelerating

Table 2.5 FDI m different industries of Shandong Province in 2015

Table 2.6 FDI from different countries (regions) in Shandong in 2015

the formation of a new opening-up pattern. Third, China is boosting international cooperation in production capacity and equipment manufacturing and it helps speed up the transfer of production capacity and expands the space for economic development. Fourth, the construction of the China-ROK Free Trade Zone is likely to bring about new momentum for the opening-up of Shandong.

Table 2.7 Actual overseas investment of each city in Shandong in 2015

• 4) DEVELOPMENT TREND PROSPECTS FOR 2016
• i) General idea. In conformity to China’s effort to deeply integrate into the world economy, Shandong will thoroughly act upon messages conveyed at the 18th National Congress of the CPC Central Committee and the third, fourth and fifth plenary sessions of the CPC Central Committee, as well as the series of important speeches made by President Xi Jinping and the important speeches and instructions made during his visit to Shandong with a view to shaping new advantages in the development of an open economy and promote economic transformation and development. On this basis, Shandong will implement a more proactive opening-up strategy and further innovate in and improve its business environment. Also, it will make active efforts to create a new engine for open development, constantly explore new ways for further opening-up and make great efforts to open up new space for utilizing foreign capital. By making fall use of its geographical advantages, Shandong, a coastal province, will speed up the building of the China-ROK Free Trade Zone hi an effort to build a new high for opening-up. It will step up the development of new competitive advantages for participating in and leading international economic cooperation and promote reform, development and innovation through opening-up, thus providing strong support for steady economic growth and social progress.

ii) Objectives. It is estimated that Shandong will actually utilize USS 18.75 billion of foreign capital in 2016, an increase of 4.8%, of which foreign investment will be US$17.12 billion, up 5%, and foreign loans will rise by 1.8% to USS 1.631 billion. Overseas foreign direct investment (OFDI) will reach USS6.65 billion, an increase of about 15%.

Hi) Priorities. First, Shandong will speed up the construction of major open investment vehicles and make new breakthr oughs in attracting foreign investment. It will actively promote the construction of the China-ROK Free Trade Zone to deepen investment cooperation between Shandong and the Republic of Korea. Shandong will spare no efforts in applying for the establishment of a pilot free trade zone. After capturing a correct orientation for development, it will accelerate the planning of the proposed free trade zone to highlight Shandong characteristics and enhance overall coordination to boost new breakthroughs in its opening-up. Guided by clear functional orientations and development directions for development zones, Shandong will gather high-end key resources to actively promote innovation in systems and mechanisms, build new development momentums and create new advantages in a bid to build them into important platforms for Shandong to undertake industrial transfer and attract investment.

Second, Shandong will advance the integration of investment attraction with the introduction of intelligence and technologies so as to utilize foreign capital in a more effective way. Efforts will be made to expand the opening-up of the service sector. Taking the service sector as a key area for attracting investment, Shandong will encourage foreign investment to focus on the development of modern service industries such as finance and insurance, science and technology information, modern logistics, services outsourcing, tourism exhibitions, rating and evaluation, accounting and audit, legal services, brand creativity, and human resources, in an effort to build up new advantages in sendee industry development through win-win cooperation. It will support and guide foreign investment in major infrastructure development and in the reform of state-owned enterprises to utilize foreign capital, thus to fill gaps in government hinds and use foreign advanced management experience to drive institutional innovation.

Third, Shandong will accelerate international capacity cooperation and deploy industry chains globally. To this end, Shandong will actively push enterprises in key industries and areas covering steel, cement, electrolytic aluminum, construction machinery, chemical, automotive, light industry and textiles to go global. While strengthening cooperation in production capacity with key countries, it will, relying on the six cooperation corridors, key country cooperation plans and country-specific matchmaking programs, support enterprises to actively participate in foreign economic cooperation according to relevant deployment at the national level. It will support enterprises to build featured industrial parks and industrial clusters abroad and further expand cooperation in energy and resources.

Fourth, Shandong will expand the areas where loans are granted and enhance the demonstration and innovation effects of foreign loans. For this reason, it will continue to expand the scale of overseas financing of enterprises. Centered on key areas prioritized by the province in development, it will select a number of projects in line with the national industrial policies and requiring the introduction of foreign advanced technical equipment, pilot enterprises in overseas bond issuance, and make good use of international commercial loans by winning over preferential foreign loans in key areas. Foreign loans projects will be screened and reserved with a focus on the integration of medical care and pension, urban

Regional investment analysis report 2015 139 and rural integration, regional integration, upgrading and transformation of transport infrastructure, ecological construction, vocational education, food safety, rural reconstruction and industrial energy conservation.

tv) Measures. First, Shandong will strengthen study on policies and measures to boost economic and social opening-up and development. It will earnestly act upon ZF [2015] No. 13 and study and formulate its own policies and measures for developing a new open economic system. Studies on key countries of international capacity and equipment manufacturing cooperation will be strengthened. The process of formulating management measures on financial fund support for overseas investment will be accelerated.

Second, Shandong will innovate the mechanism of attracting investment and create a better busmess environment. Efforts will be furthered to attract investment from key countries and regions. Relying on the major investment attraction platforms and cooperation mechanisms, Shandong will further improve the pertinence and effectiveness of investment attraction by targeting Fortune Global 500 companies and leading enterprises in each industry in the Republic of Korea, Germany and the United States. To this end, support measures and services will be worked out and the investment environment improved. Strength will be devoted to meeting demands for such key factors as land use, electricity and water for large foreign investment projects, remove difficulties for foreign investors regarding recruitment, medical care for employees and schooling for their children, attracting new enterprises to settle in Shandong and assisting old ones in seeking capital increment, so as to realize business-oriented investment attraction.

Third, Shandong will actively promote international capacity and equipment manufacturing cooperation. Relying on the existing friendship with foreign provinces and cities, it will actively explore new cooperation areas, open up outward transfer channels for advantageous production capacity and access to energy resources, and broaden channels for cooperation and exchange with foreign countries. In addition to deepening and promoting the collaboration between provincial and central authorities, Shandong will also actively participate in multilateral and bilateral investment promotion activities in cooperation with partners from foreign countries. In order to foster a number of international enterprises, competitive Shandong enterprises are encouraged to improve their capital structure, expand business scale, cultivate international brands and improve international competitiveness by means of transnational M&A, overseas listing and cooperation with strong domestic and foreign partners. Furthermore, Shandong will make more efforts to establish a risk control system for overseas investment, and strengthen cooperation with financial and insurance institutions to help enterprises effectively forestall investment risks and steadily push forward overseas investment projects.

Fourth, Shandong will further promote the reform of foreign debt management. In line with the messages conveyed in the Circular on Promoting the Reform of Registration-based Management of Foreign Debt Issuance by Enterprises, it will guide key local enterprises to issue more bonds overseas, take active actions to get itself into the pilot reform of lump-sum foreign debt management and make betteruse of low-cost funds in the domestic capital market to boost investment and ensure steady growth. Focusing on advancing the issuance of US$1 billion of bonds overseas by Shandong Iron & Steel Group, Shandong will accelerate the link-up and construction of foreign loan projects such as the Confucius and Mencius cultural heritage protection project funded by the World Bank and the Phase II projects of the pilot progr am of energy conservation and emission reduction supported by the Asian Development Bank, so as to give better play to the positive role of foreign loans in promoting economic and social development.

• (2) Investment in and from BRI countries in 2015
• 1) INVESTMENT IN BRI COUNTRIES

Centered around participation in the implementation of BRI countries, Shandong expedited the construction of overseas industrial parks and enabled local enteiprises to go global in clusters. Shandong is building eight economic and trade parks in BRI countries, with a total investment of US$2.3 billion. Up to 187 enterprises have settled in these parks, with a total output value of US$4.6 billion and a tax payment of US$200 million to the host countries. This has created over 10,000 jobs for the local people in relevant countries and regions. The Haier-Ruba Economic Zone constructed by Haier Group in Pakistan is the first national-level overseas economic and trade cooperation zone of China. Seven enterprises settled in the zone with an annual output of 1.5 million sets of household appliances, making Haier the top household appliance brand in Pakistan. The China-Russia Tomsk State Wood Industry and Trade Cooperation Zone, constructed by AVIC Forestry Co., Ltd., has completed an investment of US$400 million, attracting 20 enterprises from China, the United States and Russia, 16 of which have gone into operation. The China-Hungary BorsodChem Economic and Trade Cooperation Zone constructed by Wanhua Chemical Group Co., Ltd. has invested US$573 million in infrastructure, attracting 15 enterprises from China, Austria, France, Norway, Germany and the United States, including nine Chinese-funded processing and manufacturing enterprises. It has been built into one of the Chinese-funded parks with the largest investment and greatest efforts in construction around the world.

Shandong decided to propel 190 overseas projects after screening, with a total planned investment of more than RMB450 billion, of which 65 projects have been started. In 2015, Shandong set up 124 enterprises in BRI countries, in which Chinese investment amounted to USS 1.11 billion, an increase of 30.2%. Tire enterprises including Sailun Tyres, Linglong Tyre, Ogreen Group and Qingdao Sentury Tire Co., Ltd. set up production bases in Southeast Asia and Central Asia, and designed 41 million production capacity lines of which 26.5 million have been put into production. Wanhua Chemical Group invested EUR1.26 billion in the purchase of Hungary’s BorsodChem MCHZ, China’s largest investment project in Central and Eastern Europe so far. Shandong Weiqiao Pioneering Group’s aluminum oxide project with an annual output of

• 2 million tons in Kalimantan, Indonesia is the first large aluminum oxide smelting project invested in by a Chinese enterprise overseas.
• 2) INVESTMENT FROM BRI COUNTRIES

The investment of BRI countries and regions in Shandong Province came mainly from Asia, Europe, Africa and elsewhere. Regarding investment from Asia, the total amount of foreign investment actually used in 2015 was USS 11,595,030,000, up 6.8% year-on-year, of which the used investment from the Republic of Korea grew the fastest by 35.12% year-on-year. In terms of investment from Europe, the paid-in foreign investment registered US$809.36 million, up 8.07% year-on-year, and the actually used investment from Germany saw the greatest growth, up 108.40% year-on-year. In terms of investment from Africa, the foreign investment actually used in 2015 totaled US$96.67 million, down 8.05%. See Table 2.8.

3) PROSPECTS FOR 2016

The year 2016 is the beginning of the 13th Five-Year Plan period and the year of advancing the BRI on all fronts. To participate in the implementation of the BRI, Shandong will, in accordance with national strategies, adhere to the

Table 2.8 Investment of BRI countries and regions in Shandong in 2015

four-pronged comprehensive strategy, firmly adhere to the five development concepts, and promote all the work centering on the goal of building itself into “five centers’’ and focusing on eight cooperation fields, in a bid to ensure progress in BRI implementation. It is estimated that in 2016, the import and export volume of Shandong from and to BRI countries will increase by about 8%, while overseas investment will rise by about 10%.

i) Strengthening work coordination and linkage, and accelerating policy communication. Shandong must take policy coordination as an important supporting measure and build a new mechanism for effective and smooth foreign exchanges and cooperation. In addition to improving the policy connection mechanism, it will follow closely the policy orientation of the central government to organize mutual exchanges and visits, high-level forums and other activities, and actively strengthen communication with BRI countries in respect of major strategies, major projects and major plans, and increase targeted cooperation. The information release mechanism will be reinforced. Shandong will set up an information release platform thr ough central and provincial media, and systematically and comprehensively release authoritative information in connection with industrial policies, investment and financing environment and market risks in BRI countries, with a view to providing strong support for Shandong enterprises to go global. Efforts will be made to improve the work promotion mechanism and strengthen the reporting and communication with the relevant ministries and commissions at the national level. All cities will be urged to speed up the establishment of relevant institutions and specify responsibilities so that the going-global campaign can be carried out in a smooth manner with combined efforts at all levels.

ii) Strengthening the construction of logistics channels, and accelerating the interconnection of facilities. Shandong will continue to prioritize facilities interconnectivity and speed up the connection with international economic cooperation corridors, with an aim to build a regional modern logistics center. In order to run more freight trains between China and Europe as soon as possible, backbone overland channels will be opened up to vigorously push forward intercity high-speed rail and inter-county highway projects. Backbone passageways on the sea will be opened up and marine transport sendee systems will be established to enhance the shipping capacity of Qingdao, Rizhao and Yantai ports. The province will push forward the construction of Shandong-Liaoning overland and maritime roll-on/roll-off channels and build an important international shipping hub for the BRI. Backbone air routes will be developed to build airports in Jinan, Qingdao and Yantai into regional aviation hubs. Positive efforts will be dedicated to opening up new intercontinental air lines, developing the “sky shuttle” business model and form a complete air transport network.

Hi) Strengthening the exploration of international markets and accelerating free trade. Shandong will continue to focus on free trade, combine going-global and bringing-in strategies and vigorously cany out cooperation in international

Regional investment analysis report 2015 143 production capacity and equipment manufacturing. Laying an emphasis on the transfer of advantageous and surplus production capacity, Shandong will thoroughly implement the strategy of ’'cutting overcapacity, reducing excess inventory, deleveraging, lowering costs, and strengthening areas of weakness” and the coordinated promotion framework agreement signed between Shandong Province and the NDRC, and study and formulate guiding opinions on the cooperation in key industries with foreign countries. Key enterprises such as agriculture, fishery, timber, non-ferrous metals, oil and gas will be encouraged to exploit resources in areas rich in energy resources. With a focus on the construction of overseas cooperation parks, Shandong will support the expansion and advancement of overseas parks of a certain scale, and push eligible enterprises to construct a number of overseas cooperation parks in BRI countries. Based on the construction of cooperation and exchange platforms, it will accelerate the development of the East Asia Marine Cooperation Platform, Weihai China-South Korea Regional Economic Cooperation Demonstration Zone, the China-South Korea (Yantai) Industrial Park, and standard technical service platform and overseas project investment service platforms in the BRI and support more enterprises to set up overseas trade representative offices.

iv) Strengthening the innovation in financing models and promoting finance. Shandong will continue to take financing as an important support to actively expand the field of financial cooperation and innovate in financial cooperation models. To enhance financial support, it will study and establish a guiding fund for the province to participate in the implementation of the BRI, and intensify the leverage effect of financial funds. It will encourage local financial institutions to offer favorable conditions to going-global projects. To strengthen financial cooperation, it will give full play to its advantages as the host of a pilot program for financial cooperation between China and the Republic of Korea, deepen financial cooperation between Shandong and the ROK, and support domestic institutions to issue bonds there. It will step up communication mechanisms with the Silk Road Fund and Asian Infrastructure Investment Bank, and win over more support for Shandong-initiated projects. It will intensify efforts in risk prevention and control, strengthen strategic cooperation with policy-oriented financial institutions such as China Export & Credit Insurance Corporation and expand the coverage of export credit insurance, providing financial support and risk protection for going-global enterprises.

v) Strengthening international cultural exchanges and people-to-people bonds. Rooted in people-to-people bonds, Shandong will inherit and cany forward the spirit of friendship and cooperation along the ancient Silk Road and promote mutual appreciation and common prosperity of civilizations. In order to reinforce cultural exchanges, it will make intensive efforts to build the brand of “Confucius Hometown - Shandong, China,” implement the Shandong Cultural Silk Road plan, build the Shandong Charm, Cultural Shandong modularized project on international cultural exchange, and enhance mutual understanding and identification.

The cooperation in science and education with Russia, Belarus, Ukraine, Israel and other countries will be enhanced in a joint effort to establish Confucius Institutes with universities in countries along the Silk Road. Tourism cooperation will be strengthened to actively recommend the rich tourism resources of Shandong. Strength will also be devoted to accelerating the progress of fostering tourism products themed on “Hospitable Shandong - Explore the Source of Silk Road” and building Shandong into an important tourism destination for the BRI.

• 4) RECOMMENDATIONS
• i) Strengthening guidance. It is recommended that the central government should strengthen guidance for local governments in promoting the BRI by way of talks instead of admonishments and further clarify the direction and focus of the work. The central government should accelerate the preparation of cooperation plans with key countries, take the lead in bridging all countries, study and propose key cooperation areas and projects, and enhance targeted cooperation. The central government is expected to coordinate industrial layout, cooperation areas, etc., direct all provinces and regions to participate in the implementation of the BRI in an orderly manner to form stronger synergy.

ii) Increasing policy’ support. It is recommended to coordinate with financial institutions, especially the Silk Road Fund and Asian Infrastructure Investment Bank, to increase support for major national landmark projects in BRI countries. Priority should be given to key projects listed in the national BRI project database and major policy issues in the three-year rolling plan. Support should be increased for the construction of major international logistics channels, and for the extension of more China-Europe freight trains passing Jinan. Besides, support should be provided for the development of the China-Russia Tomsk State Wood Industry and Trade Cooperation Zone, the China-Hungary BorsodChem Economic and Trade Cooperation Zone, and the Central European Trade and Logistics Cooperation Zone.

Hi) Establishing a national BRI information platform. In order to release information in a timely manner about major policies and major issues in BRI countries and regions, and provide timely and accurate information for domestic market participants in the BRI, it is recommended that China establish a BRI information platform as soon as possible. At the same time, China should set up a think tank cooperation mechanism with BRI countries, pay close attention to changes in then policies, and strengthen communication with news agencies in these countries, so as to provide good public information support for enterprises that go global.