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Inward and outward investment is an important means for developing countries to participate in economic globalization and international competition. The two are interdependent and supplementary to each other. Attracting foreign capital is an important basis for foreign investment. Absorbing foreign capital can help solve the domestic capital shortage, gain advanced technology and management experience, promote the integration of product sales channels with the international market, and create competitive advantages of domestic enterprises. Competitive advantages are the foundation and driving force for enterprises to make overseas investment. Outward foreign direct investment (OFDI) can bypass trade barrier’s, provide strategic resources and technical guarantee for the development of domestic economy, and it can also attract foreign investment, promote exports, build brands, and facilitate the participation in international competition and cooperation. Inward and outward cross-border capital flow can continuously promote a country's economic development and its industrial restructuring and upgr ading.
In recent years, China has become an important force in international direct investment flow, and Yunnan Province has made great achievements both in absorbing foreign direct investment (FDI) and in outward foreign direct investment. However, problems remain in terms of the flow-stock structure, industrial distribution, regional structure and investment models of inward and outward investment in the province.
(1) Recent policies of Yunnan to promote inward and outward investment
Yunnan vigorously promoted infrastructure construction, deepened the reform of the administrative review and approval system, and enhanced its appeal to foreign investment with a well-functioning administrative, legal, and investment environment. It successively launched a series of policies, including the Opinions of the Investment Invitation Commission of Yunnan Province on Strengthening Investment Promotion in the Border Areas, the Implementation Measures of Yunnan Province to Strengthen the Introduction of Talents Based on Investment Promotion, Opinions of the Investment Invitation Commission of Yunnan Province on Working Harder to Promote the Steady Increase of Investment, and Opinions of Yunnan Provincial People’s Government on Promoting Cooperation on International Production Capacity and Equipment Manufacturing. With these in place, the policy system of investment invitation in Yunnan Province is improved greatly. At the same time, relevant departments of the province introduced policies in areas of industrial transformation and upgrading, private economic development, and attracting domestic and foreign R&D institutions and technology-based small and medium-sized enterprises, setting up a good policy platform for the introduction and implementation of foreign investment projects.
Utilization of foreign capital: In 2015, under the strong leadership of the CPC Yunnan Provincial Committee and the People’s Government of Yunnan Province, all the prefectures, cities and relevant departments of the whole province actively adapted to the new normal of economic development, promoted reform on the basis of stable growth of the whole province, and made great efforts to come up with innovative working ideas and broaden investment channels. The province gave prominence to targeted investment attraction efforts, actively engaged in large-scale and quality investment promotion, vigorously promoted project implementation, pushed for cooperation intentions to turn into real contracts, strove to ensure project funding, and devoted all efforts to ensure sound utilization of foreign capital. There were 142 new projects approved in the province throughout the year, representing a 7.58% year-on-year growth, with the total contractual foreign investment amounting to USS2.26 billion, a year-on-year increase of 108.7%, and the actual use of foreign investment at US$2.99 billion (full-caliber figures), a 10.6% increase over the previous year, which is 4.2 percentage points higher than the national average and higher than the province’s target growth rate of the year. Sources of foreign investment diversified with investment coming from more than 50 countries and regions to Yunnan. The Hong Kong SAR contributed more than 80% of the total foreign investment in the province. The foreign investment structure in Yunnan is more
Regional investment analysis report 2015 213 reasonable with a gradual transformation from traditional industries to new manufacturing, modern services, public infrastructure construction and related areas. Foreign investment played a more prominent role in the economic growth and the improvement of the people's livelihood across the province.
Overseas investment: In 2015, Yunnan stepped up its efforts to streamline administration and delegate power in regard to foreign investment, and further improved the policy and service system for enterprises to “go global," so as to maintain a high growth rate of overseas investment. By the end of 2014, a total of 635 enterprises in the province made a total of US$5.76 billion of outward investment. Among them, 103 were established in 2015 with a total outward investment of US$1,344 billion, a 30.4% year-on-year increase, ranking fourteenth in the country and third in West China. In 2015, Yunnan enterprises signed 95 new contracts for overseas projects, with a total contractual investment of US$12,86.38 million, a 4.29% decrease from the previous year. The turnover was US$2,341.62 million, a year-on-year increase of 13.1%, ranking seventeenth in the country. In 2015, Yunnan sent 10,398 workers abroad, a 12.7% increase over 2014. Among them, 7,348 people were sent for specific projects, accounting for 70.67% of the total; 775 people were sent under labor cooperation agreements, accounting for 7.45%; 2,275 people were sent for overseas investment, accounting for 21.88%; and mid- and high-end labor accounted for 6.8% of the total.
2) STRUCTURE OF INWARD AND OUTWARD INVESTMENT
Foreign capital utilization: The scale and quality of the utilization of foreign capital was continuously improved. In 2015, Yunnan witnessed stable growth in major foreign investment indicators thanks to the effective implementation of policy measures such as attracting large and high-quality investment, promoting the signing of project contracts and ensuring project funding. The FDI growth rate was 3.1 percentage points higher a year earlier, returning to a double-digit growth rate. Contractual foreign capital showed the fastest growth in the last 10 years, providing a good foundation for promoting the quality and quantity of FDI in the coming year. Meanwhile, the average contractual foreign investment of new single projects was US$15.9 million, a 94% year-on-year increase and the highest in the last 10 years. To sum up, the quality of foreign capital utilization in the province was further improved.
Efforts to attract large and quality investment projects were very effective. In 2015, the efforts saw solid progress. Yunnan Province and China Resources (Holdings) Co., Ltd. signed a new strategic cooperation agreement to comprehensively deepen the cooperation in healthcare, real estate, new energy, cement, and other fields, and made a smooth progress. Cooperation between KISC Cement and China Resources Cement entered the implementation stage. Yun-tianhua Group and Israel Chemicals set up a joint venture, Haikou Phosphorus Co., Ltd. under Yunnan Phosphate Chemical Group with a total investment of US$450 million. It was the largest joint venture project of Yunnan Province inthe year. Wal-Mart, Coca-Cola, Starbucks and other large international enterprises who had already settled in the province also expanded their investments.
The industrial structure of Yunnan’s investment was further improved. In 2015, Yunnan Province made more efforts to attract industrial investment, with the actual utilization of foreign capital in the secondary industry accounting for 40.4% of the total foreign investment of the province, a 0.4 percentage point year-on-year increase. Specifically, the production and supply of power, gas and water contributed 20.3% of the investment, 14 percentage points higher than the previous year, which was the largest increase among various industries. The proportion of FDI in the primary industry increased by 0.2 percentage point over the previous year, and investment in the featured plateau agriculture increased. In the service sector, wholesale and retail sales contributed 9.6% of foreign investment in the province, up 5.3 percentage points year-on-year; the contribution of the financial industry saw a 0.8 percentage point year-on-year increase, and the real estate industry’s contribution dropped by 5.6 percentage points year-on-year.
ASEAN countries’ investment in Yunnan Province increased rapidly. In 2015, in an effort to build the province into a central place for reaching out to South Asia and Southeast Asia, Yunnan Province took more targeted measures to attract investment in key areas. Up to USS 110 million came from ASEAN countries, representing a 198% year-on-year increase, and accounting for 4.5% of the total foreign investment in the province. The total contractual foreign investment was US$170 million, a 194% increase from the previous year, accounting for 8.4% of the total amount of the province. Singapore and Malaysia, in particular, made greater contributions. At the same time, the Hong Kong SAR remained the largest source of foreign capital for Yunnan Province, contributing US$1.74 billion, a 12% year-on-year increase, accounting for 73% of the total amount of the province. In addition, European countries like the UK and the Netherlands also invested more in the province.
More foreign capital flowed to key industrial parks. In 2015, Yunnan Province took the initiative to promote to attract investment to various industrial parks, and key parks played a better role as platforms and carriers of institutional innovation, science and technology guidance, industrial agglomeration and intensive land use, showing great appeal to foreign investment. FDI in state-level development zones such as the Kunming High-tech Industrial Development Zone, Kunming Economic and Technology Development Zone, Dianchi Kunming Resort and Dali Economic and Technology Development Zone reached US$990 million, accounting for 32.9% of the total amount of the province.
Some prefectures and cities saw sharp FDI increases. In 2015, most of the prefectures and cities in Yunnan Province made active and effective use of foreign capital, and there was a good momentum in attracting foreign capital. Kunming continued to play a prominent role in promoting the utilization of foreign capital across the province, with its FDI amounting to nearly US$2.19 billion, a 9.1% year-on-year increase, which accounted for 73.4% of the total FDI of the
Regional investment analysis report 2015 215 province. The FDI in Qujing and Dali exceeded USS 100 million, while that in Baoshan exceeded US$100 million for three consecutive years. Qujing, Honghe and Dali reached far beyond the FDI target set for them for the year, and FDI in Chuxiong, Diqing and Qujing increased by more than 55%.
Overseas investment: Yunnan maintained its position in traditional markets and made breakthroughs in new markets. The five countries in the Greater Mekong Sub-Region (Laos, Myanmar, Thailand, Cambodia and Vietnam) remained the main destination markets for Yunnan enterprises’ overseas investment. In 2015, Yunnan enterprises set up 67 new facilities in Laos, Myanmar, and Thailand, accounting for 65% of the total number of overseas enterprises established in the year. Real investment in these five countries totaled US$793 million, accounting for 59.4% of the total. Meanwhile, Yunnan enterprises accelerated new market development, and established investment enterprises in the United Kingdom, India, New Zealand, and Canada. So far, Yunnan enterprises have invested in 45 countries and regions in the world.
Investment from state-owned enterprises is stable, while a breakthrough was seen in the private sector. In 2015, Yunnan Provincial Energy Investment Group Co., Ltd. and other state-owned enterprises actually invested US$655 million abroad, accounting for 49.1% of the province’s total actual outward investment, nearly half. Private enterprises played an active role. Among the 103 enterprises established abroad by Yunnan enterprises, 89 were private ones, accounting for 86.4% of the total. The actual investment amounted to USS679 million, accounting for 50.9% of the province’s total.
Investment involved more industries and fields. In 2015, the overseas investment of Yunnan Province involved nine economic sectors. Traditional sectors such as agriculture, mining, and electricity continued to witness the largest investment. However, the industries of investment diversified with new investment in such fields as advanced manufacturing (e.g., pharmaceuticals), emerging services (e.g., ecological protection and environmental management), e-commerce, and culture. In addition, in 2014, there were seven transnational M&A cases made by Yunnan enterprises, and the agreed investment from the Chinese side reached a record high of US$870 million.
3) PROBLEMS IN INWARD AND OUTWARD INVESTMENT
Foreign investment utilization: First, it is common that investors take a wait-and-see attitude because of the influence of the macroeconomic situation which has led to a generally low expectation and low willingness to invest among investors. Second, large projects still face obstacles in terms of environmental capacity, land and forest-related restrictions, and land planning regulation. These resulted in the slow progress of some projects. More efforts must be made to ensure project implementation. Third, the structure of investment attraction efforts needs to be improved to bring large-scale and high-quality projects that can drive along the industrial development, transformation and upgrading of the whole province. Fourth, different prefectures and cities have shown unbalanceddevelopment, lack of differentiation in investment attraction, poorly targeted investment attraction efforts, low quality of investment projects and insufficient specialization. Fifth, there is a lack of support for FDI growth in the long ran. Current foreign investment projects in the province are of small scale and low quality, and offer inadequate driving force for long-term FDI growth. Sixth, there is a lack of direct investment from developed countries. FDI in Yunnan are mainly from Asia, especially the Hong Kong SAR.
Overseas investment: First, there is not yet any leading transnational enterprises in Yunnan to drive the going-global campaign of more enterprises in industrial clusters. Enterprises have insufficient experience and ability in the aspects of risk control, international financing, global operation, and overseas investment management. The going-global efforts of Yunnan enterprises mainly focus on mining and hydropower development in neighboring countries and face many unstable and uncertain factors. Poor industrial structure of investment, overconcentration in some businesses, serious homogeneity and weak abilities to respond to changes of environment all posed restrictions on Yunnan enterprises' overseas investment and cooperation activities. Second, in recent years, the rapid adjustment of the political and economic situations in neighboring countries have led to more external restrictions and control in the field of resources, and marked changes in the investment and cooperation environment in traditional markets. This has posed many risks and challenges to the going-global of relevant enterprises. Third, there is a large binding gap in overseas investment by Yunnan enterprises. Fourth, in Southeast Asian and South Asian countries, the financial systems are not adequate to support the development of some large projects, and the debt financing for them, therefore, needs to be done in the Chinese financial market. Fifth, the debt financing threshold, including loan mortgage and guarantee conditions, is relatively high, and the risk assessment procedure is cumbersome and the lending speed slow.
4) TRENDS AND PROSPECTS FOR 2016
Utilization of foreign capital: In 2016, the utilization of foreign capital is to increase by more than 5% on the basis of the US$2.99 billion of 2015, and the proportions of investment contracts signed and implemented, projects commenced, and funding secured should all be steadily increased. The province will promote the implementation of pre-establishment national treatment and negative list for foreign investment management, and guide foreign investment into the fields of modern agriculture, biomedicine, equipment manufacturing, finance and other strategic emerging industries and modern service industries. Thus, Yunnan will continue to expand foreign investment coverage and improve the structure, so that foreign investment will play a greater role in promoting the further, better-structured and higher-quality opening-up of the province. The province will take a more targeted approach to step up investment attraction efforts in developed countries and regions such as Europe, America, Japan, the Republic of Korea, and Israel, so as to attract more Fortune Global
Regional investment analysis report 2015 217 500 enterprises, international organizations, regional headquarters and R&D centers to Yunnan. The province will fully implement national policies and measures for utilizing foreign capital and further improve the data collection and performance evaluation related to foreign investment. Yunnan will give better play to the roles of its foreign affairs, overseas Chinese and Taiwan affairs departments so as to attract more capital from the Hong Kong SAR, the Taiwan region, and overseas Chinese investors to Yunnan for development.
Overseas investment: Overseas investment by Yunnan enterprises is to reach USS1.5 billion in 2016, up 12% from 2015. The industrial distribution is to be further improved, the global resource allocation capability improved, new driving forces for economic growth formed, the process of enterprise transformation and upgrading accelerated, and the ability of overseas investment of enterprises improved. A batch of projects are going to be implemented in the areas of electricity, metallurgy, equipment manufacturing, chemical industry, building materials, light industry and logistics. A number of backbone enterprises for overseas investment will be nurtured and overseas investment will be more than doubled. The province will help the overseas investment enterprises emerge from losses and make overseas investment an important source for driving force for growth.
At the same time, Yunnan Province will strive to improve the soft investment environment, encourage multinational companies to set up regional headquarters as well as R&D, procurement and operation centers in Yunnan, and gradually form industrial clusters covering the whole industry chain. It will encourage foreign investment in social public services such as services for seniors and the disabled. The province will make better use of its overseas business representative offices to obtain information on the market conditions, policies, and major projects in relevant countries. Services will be provided for going-global and bringing-in. The province encourages enterprises with comparative advantages to carry out production capacity cooperation abroad, and to undertake overseas construction projects and labor cooperation projects abroad at their own risk.
During the 12th Five-Year Plan period, Yunnan stepped up its effort to promote outward investment. A number of qualified state-owned enterprises (SOEs) became the main force of overseas investment, making cross-border investment to improve resource allocation on a larger scale and build overseas presence. These enterprises contributed more than 70% of the province’s total outward foreign direct investment in non-financial sectors. At the same time, investment by SOEs helped a number of small and medium-sized enterprises (SMEs) and private enterprises to go global as well. In 2015, among the 103 new overseas enterprises established by Yunnan investors, 89 were private enterprises, accounting for 86.4% of the total. Neighboring countries like Laos, Myanmar,
Thailand. Cambodia, and Vietnam were destinations of overseas investment from Yunnan. In 2015, the actual investment by Yunnan enterprises in these five countries totaled USS793 million, accounting for 59.4% of the total. This effectively deepened economic relations with these countries and promoted the inclusive development in host countries as projects were largely localized in terms of their operation, contributed a lot to the development of local public welfare undertakings and helped improve local infrastructure such as highways.
2) PROSPECTS FOR 2016
Yunnan Province will take the initiative to serve and integrate itself into the BRI, which is a major initiative proposed by China, and actively participate in the construction of the Bangladesh-China-India-Myanmar Economic Corridor, the China-Indochina Peninsula International Economic Corridor, the Lancang-Mekong River Cooperation and the Greater Mekong Sub-regional Economic Cooperation. In addition, the province will strengthen exchanges and cooperation with neighboring countries in infrastructure connectivity, cultural exchanges, industrial investment, economy and trade, and finance, strive to build new advantages for further opening-up, actively participate in the establishment of a mechanism for regional interaction and cooperation, and develop itself into a central place for reaching out to South Asia and Southeast Asia.
First, Yunnan will continue to improve its investment environment. The province will continue to enhance its administrative, legal and social environment for foreign investment, and accelerate the formation of a market environment, an investment and financing system and a factor allocation system that are conducive to innovation and development. It will treat SOEs, foreign-funded enterprises and private enterprises equally and offer a level ground for competition. It will actively channel foreign investment to areas permitted by law. The province will standardize government supervision and services in regard to investment promotion, project implementation and production management. It will also further reduce approval requirements or delegate more power to lower-level authorities, and improve the review and approval process and efficiency, so as to ensure investment attraction efforts are law-based with standard operations, unified power and responsibility and coordination. The province will take talents as the top driving force for investment attraction, build specialized investment attraction teams and establish related think tanks for this purpose.
Second, Yunnan will reform its management system for overseas cooperation projects and improve relevant services. Yunnan will deepen the reform of the management system for overseas investment and make more efforts to streamline administration and delegate power. The province will let enterprises make their own investment decisions and bear the relevant responsibilities by themselves, relax restrictions on overseas investment and simplify relevant management procedures. It will require only filing instead of doing review and giving approval for all overseas investment projects except those covered by relevant
Regional investment analysis report 2015 219 national regulations that stipulate otherwise. The province will guide relevant enterprises to perform sound project feasibility study and demonstration, establish the benefit-risk assessment mechanism, and properly prevent and resolve all kinds of risks emerged in the implementation of projects.
Third, the province will move faster to improve infrastructure connectivity with surrounding areas. Yunnan will make active efforts to gain support from the national level to accelerate the construction of major international channels for connectivity, promote the preparatory work for the China-Myanmar Ruili-Kyaukpyu railway and the China-Vietnam Hekou-Haiphong railway so that construction can start as early as possible, and take an active part in the construction of the Mohan-Vientiane railway. The province will also promote the pre-construction work of Zhangfeng-Bhamo (Myanmar) highway and Myitkyina-Banshao Highway, and actively implement the Phase II waterway regulation project on the Mekong River. It will actively seek the support of the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and other international financial organizations, as well as the Silk Road Fund and the China-ASEAN Investment Cooperation Fund, to promote the construction of major cooperation projects.
Fourth, Yunnan will strengthen international cooperation in production capacity and equipment manufacturing. Yunnan Province will carry out capacity cooperation in power, equipment manufacturing, metallurgy, chemical industry and other fields in South Asia and Southeast Asia, and establish a comprehensive service support system for the going-global of its enterprises to create a new model for international production capacity and equipment manufacturing cooperation. Based on cross-border economic cooperation zones, border economic cooperation zones and comprehensive bonded areas, the province will attract foreign investment in a scientific and active manner, and take over industrial facilities transferred from elsewhere in automobiles, advanced equipment manufacturing, household appliances, building materials, electronics and information, biomedicine, and other industries. The province will develop export-oriented manufacturing industries and build export-oriented industrial bases for opening up towards South Asia and Southeast Asia.
Fifth, the province will accelerate the construction of platforms for opening-up and cooperation. Yunnan will speed up the development of Yunnan Dian Zhong New Area, the Ruili and Mengla (Mohan) national key experimental zones for development and opening-up, the Lincang Border Economic Cooperation Zone, and the Honghe Comprehensive Bonded Zone, and push forward the development of the China-Laos Mohan-Boten Economic Cooperation Zone, the China-Vietnam Hekou-Lao Cai Economic Cooperation Zone, and the China-Myanmar Ruili-Muse Cross-Border Economic Cooperation Zone. The province will actively apply for the establishment of Kunming comprehensive bonded zone and the China (Yunnan) pilot border free trade zone, and speed up the development of railway ports and airport economy. Various types of development zones shall be encouraged to innovate in systems and operation modes to bring about a clustering effect. The province will actively participate inthe planning and construction of major projects including overseas ports and industrial parks, support suitable enterprises in the province to go global and participate in the planning and construction of the Kyaukpyu Special Economic Zone in Myanmar, and accelerate the construction of overseas cooperation zones such as Vientiane Saysettha Development Zone and Boten Beautiful Land Specific Economic Zone and Boten Beautiful Land Specific Economic Zone in Laos, and Myitkyina Economic and Trade Cooperation Zone in Myanmar.
Sixth, the province will strengthen the development of cooperation mechanisms and platforms. Yunnan will enhance cooperation along the Bangladesh-China-India-Myanmar Economic Corridor and in the Greater Mekong Sub-region, and promote cooperation between the province and Thailand, Laos, Vietnam, Myanmar and India. It will also actively participate in the upgrading of the China-ASEAN Free Trade Zone and the Lancang-Mekong River Cooperation Dialogues. The province will continue to host the China-South Asia Expo, prepare for the China International Agricultural Trade Fair, bring into play the role of opening-up-oriented exhibitions, and build platforms for multilateral diplomacy for mutual benefits, economic and trade cooperation, people-to-people exchanges, and overall security.
Seventh, the province will continue to improve its opening-up towards other regions of China and towards the outside world. Yunnan Province will enhance opening-up along the border, promote the functions of border port cities (towns), speed up the formation of smooth port channels and logistics and financial service systems in cooperation with neighboring countries, and improve the facilitation of customs clearance and accessibility. Yunnan will build itself into a regional center for goods distribution, investment, and financial sendees. The province will deepen international and domestic cooperation, promote the development of an open economy in an all-round way, and raise the overall level of multilateral and bilateral cooperation with neighboring countries. The province will further strengthen cooperation and exchanges with the Yangtze River Delta, the Pearl River Delta, the Hong Kong and Macao SARs, and Taiwan, and enhance cooperation with other provincial-level regions in China such as Shanghai.
Eighth, the province will strive to promote economic, trade and cultural exchanges and cooperation. Yunnan Province will accelerate the construction of high-level service platforms for education, health, science and technology, culture, and sports, as well as relevant think tanks, and build regional international talent training bases, medical service bases, R&D bases and cultural exchange centers. The province will promote friendly exchanges, economic and trade cooperation and people-to-people exchanges at various levels and in a wide range of fields with neighboring countries, sister cities, nearby regions, as well as international financial organizations and international regional cooperation institutions, so as to foster new advantages in foreign trade development. Yunnan will actively cany out public diplomacy, encourage and support non-governmental foreign exchanges, and enhance support for people's livelihood, as well as establish a public service platform for international certification and accreditation services and inspection and testing.