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Hunan

(1) Recent policies of Hunan to promote inward and outward investment

Utilization of foreign capital: Administrative Measures for the Approval and Filing of Foreign Investment Projects in Hunan Province.

Overseas investment: Administrative Measures for the Approval and Filing of Overseas Investment Projects of Hunan Province, the Implementation Plan for Hunan Province to Participate in the Development of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, the Implementation Opinions on Promoting International Capacity and Equipment Manufacturing Cooperation, and 2015-2017 Action Plan of Hunan Province for Participating in the Belt and Road Initiative.

  • (2) Inward and outward investment of Hunan in 2015
  • 1) GROWTH IN TOTAL INWARD AND OUTWARD INVESTMENT

Utilization of foreign capital: In 2015, the total contractual foreign investment in Hunan reached up to USS 11.82 billion, up 5.8% year-on-year; the actually used foreign investment was USS 11.56 billion, up 12.7% year-on-year. There were 562 new foreign-invested enterprises and projects, up 4.3% year-on-year, including 34 projects with total investment of over USS30 million.

Overseas investment: In 2015, Hunan’s contractual outward investment was USS2.78 billion, a rise of 53.1% year-on-year; its OFDI amounted to USS1.48 billion, up 55.9% year-on-year. New contracts for overseas projects and labor cooperation amounted to US$5.91 billion in value, up by 13.9% year-on-year, with the turnover totaling US$5.18 billion, a year-on-year growth of 27.1%.

2) STRUCTURE OF INWARD AND OUTWARD INVESTMENT

Utilization of foreign capital: The overall distribution of investment across industries improved, yet the manufacturing industry remained the most attractive. In 2015, there were 74 new foreign investment projects approved in the primary industry in Hunan Province, up 32.14% year-on-year, with a total contractual investment of US$854 million, up 11.45% year-on-year; the actually used foreign investment stood at US$627 million, a growth of 8.29% year-on-year. There were 277 new projects in the secondary industry, down 8.88% from the previous year; the contractual investment registered US$6,875 billion, up by 11.15% year-on-year; and the amount actually used reported US$7,145 billion, rising 8.52% year-on-year. Within the secondary industry, there were 255 manufacturing projects, down 5.56% year-on-year; the contractual investment was US$5,969 billion with a year-on-year increase of 15.04%; the amount actually used was US$5,666 billion, an increase of 4.97% over the previous year. The manufacturing projects mainly concentrated in the non-metallic mineral products industry, and the general equipment manufacturing industry. There were 211 new foreign investment projects in the tertiary industry, up 17.88% year-on-year; the contractual investment amounted to US$4,094 billion, a fall of 2.99% year-on-year; and the amount actually used saw an increase of 22.21% to US$3,793 billion. New projects were mainly in the real estate industry, wholesale and retail sales and other industries. The ratio of foreign investment used in the primary, secondary and tertiary industries was 5.42: 61.78: 32.79.

Foreign investment used was mainly from the Hong Kong SAR, Taiwan, China, and other Asian countries and regions. The province welcomed 464 new projects from Asia, up 5.94% year-on-year; the contractual investment was US$9,786 billion, an increase of 19.36% year-on-year; the amount actually used was US$8,686 billion with a year-on-year growth of 12.43%, accounting for 75.11% of the total. In Asian countries and regions, the number of new foreign-invested enterprises from the Hong Kong SAR in Hunan was 307, a fall of 2.23% year-on-year; the contractual investment stood at US$7,515 billion, up 12.25% year-on-year; the actual utilization of investment from the Hong Kong SAR increased by 6.09% to US$6,787 billion. Newly approved Taiwan-invested enterprises in Hunan numbered 88, up 35.38% year-on-year with a contractual investment of US$1,239 billion, up 120.27% year-on-year, of which the actually used investment was US$831 million, an increase of 64.14% year-on-year. The total investment from the Hong Kong SAR and Taiwan, China in Hunan accounted for 65.87% of the total. The actual European investment in Hunan reached USS 1.024 billion, up 29.84% year-on-year. Free ports in Latin America such as the British Virgin Islands actually invested US$549 million in Hunan, down 37.28% from a year earlier. Canada and the United States’ investment in Hunan was US$308 million, a year-on-year increase of 4.53%, of which investment from the United States was USS254 million, up 7.49% year-on-year. Oceania’s actual investment in Hunan reached US$138 million, a rise of 71.27% year-on-year. Investment companies invested USS811 million in Hunan, up 113.12% year-on-year.

Overseas investment: Initial achievements were made in participating in the BRI implementation. According to the data of the year, Hunan approved 66 overseas enterprises in BRI countries, with a contractual Chinese investment of US$1,504 billion, a new contractual investment of US$1,637 billion for overseas projects and labor cooperation, and a turnover of US$1,855 billion, representing 54.1%, 27.7% and 35.8% of the province’s total respectively. All saw a

Regional investment analysis report 2015 181 significant increase over the previous year. At the same time, a number of major projects in BRI countries were in preparation or in progress, such as the 800 km highway project in Laos, the agricultural industrial park project in Cambodia, and the Bangladesh sewage treatment project.

International capacity cooperation became the focus of outward investment. Major international capacity cooperation projects offered important support for the rapid growth of outward investment, which prompted impetus for advantageous and surplus capacity to go global. SANY Heavy Industry Co., Ltd. invested US$170 million in a production base in Brazil and overseas industrial parks, Zhuzhou Kibing Group Co., Ltd. invested USS 190 million to set up a float glass production line in Malaysia, Tidfore Heavy Industry Co., Ltd. invested US$220 million in a joint venture with Brazilian partners to build eight heavy-duty ships for marine and shipping services, and Hunan Jiancheng Cement Plant built a cement production line with an investment of USS90 million in Kazakhstan. The transfer of capacity in return mobilized the project contracting business of Hunan enterprises in local places. Hunan Penghui Hydropower Development Co., Ltd. invested US$70 million in a hydropower station in Nepal, giving full play to the advantages of Hunan in small hydropower project development.

3) PROBLEMS

Utilization of foreign capital: Affected by the slowdown in global economic growth and rising domestic costs, transnational investment slumped on the whole. Plus, the low investment and business costs of some developing countries in Southeast Asia attracted some foreign investment, and the competition between central and western provinces is becoming fiercer. Hunan is facing a severe situation in absorbing foreign capital.

First, there is a lack of unified legal norms, and high access threshold for foreign investment. At present, China's laws and regulations on absorbing foreign capital are very scattered. In addition to the “three laws” (Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures and Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises), there are many administrative regulations, departmental rules and policy documents targeting various fields and industries, and during the specific review and approval process, the materials that investors are required to provide are also different. Meanwhile, some industries in China, especially the service sector, have higher barriers and more restrictive conditions on foreign investment for market access, and additionally, the procedures for foreign investment in such links as industry access approval and foreign exchange are cumbersome. For example, there is a security review in some industries for foreign-invested M&As, some investors prefer to register as domestic capital or reinvestment by foreign-invested enterprises, and a few approved foreign-invested enterprises have been converted into domestic-funded enterprises.

Second, domestic costs have risen sharply and foreign investors have become more prudent. Many foreign-invested enterprises claimed that their investment and business costs had been rising year by year, and profits fell sharply.

Third, there is vicious competition in investment promotion across the country. At present, there is no unified policy and guidance for foreign investment attraction in our country, and the administrative division and performance evaluation have hindered effective regional coordination, leading to high isomorphism in various regions and a lack of effective regional division of labor.

Fourth, there is no match between departments regarding the approval and follow-up management of foreign investment projects. In terms of approval and registration, there are provincial and municipal development and reform commissions and departments of commerce for the review and approval. In addition, there are industrial and commercial departments for the registration of municipal and national industrial parks. There is thus a mismatch between the power of different departments. Some enterprises still have to go back and forth between two or even three authorities for various formalities, which increases the time and cost. In terms of joint annual report of foreign-invested enterprises, the systems for this purpose under the commercial, industrial and commercial, and foreign exchange departments are not aligned, and the starting time of relevant work is inconsistent as well.

Fifth, investment sources are over-concentrated, and the structure and quality of foreign investment utilization is poor. The Hong Kong SAR and Taiwan, China were the main sources of foreign investment in Hunan, with actual investment accounting for 66% of the total in 2015. Such a concentration of sources and a lack of support from major projects, in particular, a lack of investment from Fortune Global 500 enterprises and big projects with strong impetus in promoting industries caused obviously insufficient use of foreign investment subsequently.

Sixth, the role of industrial parks as platforms is not fully leveraged. Although Hunan is in the forefront of all central and western regions of China in respect of the number of state-level industrial parks, the parks have not fully played their role in absorbing foreign capital, resulting in low extroversion and low ranking of the province in terms of comprehensive strengths.

Seventh, after the reform of business policies and the adjustment of government functions, the statistical work becomes more difficult. As registered capital management has been changed from a paid-in system to a subscription-based system to release the vitality of the market, it usually takes a long tune for foreign enterprises to complete the payment of the registered capital. Thus, actual amount of investment tends to be low although the contractual value is high. In the current round of adjustment in the functions of government bodies, the commercial departments in most cities, prefectures, counties and districts of Hunan have merged with the departments of food, economic and information, and science and technology, and most of the people in charge of foreign investment statistics are new employees unfamiliar with the work. In some places, a statistician may take several offices concurrently and move frequently, slowing work progress.

Overseas investment: Hunan has made certain achievements in its going-global campaign and has cultivated some excellent enterprises, but the province has a long way to go to meet national requirements and build an open economy. Compared with the more developed coastal provinces, Hunan lags behind mainly in the following aspects:

First, the mindset is not open enough. The province does not attach enough importance to or have sufficient understanding of going-global. Not only are there no dedicated departments or personnel responsible for relevant work, but also the authorities do not understand the significance of going-global or the policies regarding overseas economic cooperation. People may even take it as the same thing as foreign trade. Some prefectures and counties that have certain knowledge in this respect fix their attention on foreign labor cooperation. It is believed that going-global not only brings no benefit to local economic development, but also causes the loss of local tax revenues. This is in sharp contrast to the enthusiasm of enterprises to go global. This has seriously hindered the healthy development of going-global work in Hunan.

Second, the overall planning and coordination is insufficient and the relevant management system is not sound. Going-global is a systematic program, which requires synergies to be formed across different levels and departments of the government. However, Hunan has always lacked a powerful overall planning and coordination mechanism, so it cannot folly pool resources from all sectors. The consequences have led to great difficulties in promoting the work and few results. In particular, in the management of overseas investment, there are not relevant legal provisions and administrative methods, resulting in the objective existence of multi-headed management. From the perspective of the characteristics of going-global activities, there are adverse factors such as the location of overseas enterprises and the great difficulties in supervision and services. The lack of a strong and efficient management system has increased the burden of enterprises, lowered the efficiency of their decision-making, and led to a rise in the risk of going-global.

Third, investment entities are not strong enough, and international strategy is lacking. Going-global is a comprehensive and complex economic and trade activity, which requires entities to have high operational strength. According to the actual conditions of Hunan, there are not many enterprises folly capable. Hunan brands that really have great influence in the world are still rare. At present, most of Hunan enterprises go global for the sake of short-term gains, and lack long-term strategic thinking and systematic planning. The shortage of talents for international business operation, the immaturity of international operation teams and the lack of experience in developing international markets have also brought risks to enterprises who have ventured out of China and restricted the scale, quality and level of international development of enterprises.

Fourth, the service support system lags behind and the risk of going-global increases. The financing threshold at domestic financial institutions is high and the financing channels are few. Moreover, financial institutions generally do not accept the overseas assets of enterprises as a loan guarantee. With these, enterprises, especially the private enterprises, have difficulty in financing. Moreover, the fact that the branches of Chinese financial institutions are mostly located in developed countries and regions such as Europe and America, but rarely in Asia and Africa where Hunan’s going-global enterprises concentrate, has also made it difficult for Hunan enterprises to get funding through domestic guarantee. The service ability and quality of domestic legal, accounting, financial and information consulting institutions are relatively low, while the price of foreign consulting institutions is often high. Such a gap has indirectly caused an increase of international operation costs for enterprises. Due to incomplete risk prevention mechanisms, going-global enterprises generally face higher risks than at home. Particularly, in countries and regions such as Asia and Africa, emergencies and disturbances occur from time to time, bringing great uncertainties to enterprises in transnational operation. Currently, it is difficult to provide effective guarantees for enterprises to go global because of the inflexible mechanisms, few insurance types and high premium in policy or commercial insurance institutions.

4) TRENDS AND PROSPECTS FOR 2016

Utilization of foreign capital: In line with the development ideas of innovation-driven, coordinated, green, open and shared development, in order to expand the sources of foreign investment, enhance the quality of the enterprises introduced in, and achieve better regional layout, Hunan will give full play to its regional advantages in the implementation of the BRI and actively follow and folly integrate into the national opening-up and development strategy. It will innovate in the means of investment attraction, improve the environment for foreign investment, push up the quality of investment attraction services and enhance the bearing capacity of industrial parks, so as to realize targeted investment attraction according to Hunan’s development characteristics so that investment attraction efforts can contribute more to the development of Hunan's economy.

First, the province will attach equal importance to expanding the total quantity and improving the quality of foreign investment. Efforts will be made to expand the scale and improve the quality of foreign investment, and focus will be placed on the introduction of quality projects and large projects with strong industrial driving capacity and great influence on transformation and upgrading. On the one hand, Hunan should pay attention to the total amount of foreign investment, constantly broaden investment channels for more foreign capital to come in. On the other hand, it should highlight the quality of investment attracted, and synchronize investment attraction and talent and technology introduction. Only by paying equal attention to the total quantity and quality can investment attraction work be done in a way that benefits short-term economic development, raises the industrial development level of the province and promotes the sustainable development of its economy.

Second, the province will continue to give well-targeted guidance and highlight key points. In accordance with their respective industrial development

Regional investment analysis report 2015 185 characteristics, advantages and regional characteristics, all cities, prefectures and zones should attract investment in a targeted manner with a focus on leading industries. In pursuance to their own location and transportation features, as well as the existing customer base, each part of the province should strengthen the link-up with regions prioritized for foreign investment in a targeted manner and improve the quality of investment attraction. Based on the national development strategy and the layout of key industries, investment attraction efforts should be made in line with national strategies like the BRI, Made in China 2025, and the Internet Plus initiatives.

Third, Hunan will pursue domestic and foreign investment at the same time. Domestic and foreign capital is of equal importance to the economic development of Hunan Province. To attract investment, the province should not only pay attention to attracting investment and undertaking industrial transfer from the Pearl River Delta, Yangtze River Delta and Jiangsu and Zhejiang Provinces, but also emphasize efforts to maintain and attract more investment from the Hong Kong SAR and Taiwan, China, as well as from Japan, the Republic of Korea, Europe and the United States. In terms of preferential policies, domestic and foreign capital enjoys the same treatment; in terms of access to some industries, foreign capital is catching up with domestic capital. Only if the scale of foreign capital and domestic capital expands synchronously can Hunan optimize its investment attraction structure and give better play to the role of investment attraction.

Fourth, the province will adhere to a problem-oriented and goal-oriented approach. Only when investment attraction is conducted in view of the main problems and objectives of economic development in Hunan can it become a reliable driving force to promote the sustainable development of Hunan economy. In response to the current economic development problems in Hunan and the development objectives outlined in Hunan's 13th Five-Year Plan, the province will make clear the goals to be accomplished during the 13th Five-Year Plan period, adhere to a goal-oriented approach and the combination of shortterm and long-term goals, and translate the goals into the tasks to be finished in the period. Meanwhile, the province should pool efforts to address its current problems in investment attraction as well as other problems that need to be solved, and build a new pattern in this regard.

Overseas investment: 2016 is the beginning year of the 13th Five-Year Plan period. According to the current situation, Hunan is in a golden period of development. Although the international economic recovery is still slow and the international financial market is full of uncertainties, Hunan is still expected to maintain a relatively fast pace of development in its going-global efforts.

Judging from the international environment, first, the situation of a low-speed growth in the world economy is not likely to change for the time being. After the international financial crisis, the global economy faltered in its pursuit of a new balance and a strong growth momentum. Demand constraints are further intensified, and the market becomes a scarce resource which various countries vigorously compete for. Second, new changes have taken place in the pattern ofinternational industrial division of labor. Some middle-to-high-end manufacturing industries flew back to developed countries, replacing some cross-border trade and investment. The growth rate of global trade has been lower than that of the world economy for three consecutive years, and cross-border investment has not recovered to the level before the international financial crisis. A new round of scientific and technological revolution and industrial transformation is ready to launch, and the global industry chain, supply chain and value chain are integrated at a faster pace. Third, the system of international rules is facing profound changes. The multilateral trade system has developed in a bumpy way, the Doha Round of World Trade Talks in the World Trade Organization is even harder than it looks, and regional economic cooperation is in the ascendancy. Developed countries are committed to formulating new rules for international trade and investment, trying to increase the development costs of emerging economies and developing countries, and to occupy the commanding heights of future international competition.

In terms of the domestic environment, first, new changes have happened in China’s comparative advantages. In recent years, China’s factor cost continues to climb, the resource and environment restrictions have increased, and the traditional comparative advantages have been significantly weakened. At the same time, China’s strengths hi respect of human capital, capital supply, scientific and technological innovation, infrastructure and industrial agglomeration have been continuously enhanced; the capital and technology-intensive comparative advantages are being developed and strengthened; and the foundation for fostering new advantages in international economic cooperation and competition has become more solid. Second, China’s comprehensive national strength and international status continue to rise. China has become the world's second-largest economy, and its importance and influence in the global economy have increased significantly. Our ability to participate in international affairs has been markedly enhanced. We have more conditions than ever before to actively plan a new strategic layout for opening-up and to actively create a favorable external environment for domestic development. Third, the economic new normal calls for further improvement in opening-up. With the economic development entering a new normal, it has become more urgent for China to adjust the economic structure and change the mode of economic development. It is necessary to introduce advanced elements by expanding opening-up and improve the core competitiveness of industries; and it is necessary to change China’s dominant position in assembling and manufacturing in the international division of labor, participate in the global value chain in all directions, and raise the position of our industry in the global value chain.

In terms of provincial environment, first, economies of scale gradually come into being in Hunan's ‘‘going global.” In ASEAN, Africa and other countries and regions, Hunan enterprises are increasingly influential through foreign economic cooperation, and its advantageous industries such as construction machinery, rail transit, building materials and agriculture have won more and more fame internationally. Second, the demonstration effect of going-global of Hunan has been continuously enhanced, and a batch of outstanding going-global

Regional investment analysis report 2015 187 enterprises have obtained good development, which will provide channels, resources and confidence for the latecomers and help more enterprises achieve international development. Third, the endogenous driving force is increasing Hunan enterprises who have gone global. Overcapacity is widespread in the province, and the pressure to cut excess capacity is mounting. The increasing willingness to explore new markets and seek new opportunities overseas through going-global is conducive to pushing the advantageous enterprises in Hunan to go global, cut overcapacity and drive industrial upgrading.

(3) Investment in and from BRI countries in 2015

There are no statistics on the investment from BRI countries in Hunan.

Hunan's investment in BRI countries: According to data of the year, Hunan approved 66 overseas enterprises in BRI countries, and the contractual Chinese investment was USS 1.504 billion, the new contracts for foreign project contracting and labor cooperation amounted to US$1,637 billion, and the turnover was USS1.855 billion, accounting for 54.1%, 27.7% and 35.8% of the province’s total respectively, representing significant increases over the previous year. In the meantime, a number of major projects in BRI countries are being planned and promoted, such as the 800km highway project in Laos, the agricultural industrial park project in Cambodia, and the Bangladesh sewage treatment project.

 
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