2015 marked a turning point for the use of overseas investment in Jiangsu Province, which had been ranked No. 1 in China in terms of using overseas capital. The amount of overseas investment used in the year dropped by 13.8 percent, losing the No. 1 position in the use of overseas capital.
By the end of 2014, Jiangsu province had been ranked No. 1 in the country in terms of using overseas capital and the overseas investment had played an important role in the steady and rapid development of the local economy, in industrial transition and upgrading and in social stability and in improving the people’s livelihood. The investment has contributed to a quarter of the fixed assets investment and revenue, over 60 percent of foreign trade, over 70 percent of the import and export of new and high technologies and over 30 percent of the new jobs, thus accelerating the progress of internationalization and modernization of the province.
Overseas investment in manufacturing industry dropping, but rising in service industry
Experts in the province attributed the plight to the fact that the manufacturing values assets while the service industry takes it lightly. Jiangsu, commonly recognized as a big manufacturer, has long amassed a large amount of overseas assets. But, the rising cost of production factors in the Yangtze River delta has in recent years forced the manufacturing of developed countries to move out, resulting a big drop in 2015.
As the No. 1 city in using foreign capital, Suzhou may serve as a barometer for the whole province. The statistical bulletin of the city showed that from 2013 to 2015, the amount of foreign capital used was 8.7 billion U.S. dollars, 8.12 billion U.S. dollars and 7.02 billion U.S. dollars, respectively, in the three years, registering a year-on-year drop of 5.1 percent, 6.67 percent and 13.7 percent, identical with the provincial data in terms of the changing curve.
Another city is Nanjing, which has been ranked No. 2 in the province for four consecutive years in the use of overseas capital. In recent years, the city has adjusted and optimized the areas for using overseas capital: shifting the major destinations of overseas capital from the real estate, retail sales to headquarter economy, financial service, exhibitions and conference and logistics, cultural creation, e-commerce and other modern service industries.
Besides, Nantong city, which is close to Shanghai, has developed with great momentum in recent years. Since the beginning of the 12th five-year plan period, the amount of overseas capital used by the city has been stabilized at 2 billion to 3 billion U.S. dollars, maintaining the lead in the central Jiangsu area. Over the past 5 years, the state has approved the opening of the Hai’an, Rugao and Haimen economic and technology development zones and the Nantong high and new technology zone. The city boasts 4 cross-river and transnational cooperative parks, newly approved 4 provincial level development zones (high and new technology zones). It boasts 2 state level export bases in ships and home textiles. The State Council has approved the pilot project in market procurement and trading at the National home textiles city of Dieshiqiao.
As an important city in northern Jiangsu, Yancheng is limited in using overseas capital, only 795 million U.S. dollars in 2015. But the investment from South Korea has distinctive features. Last year, the China-South Korea Industrial Park started building a platform for using investment from South Korea. According to Wang Lingchun, head of the overseas capital section of the Commercial Bureau of the city, the city approved 50 new south Korea invested projects, accounting for 30 percent of the increased number of overseas capital projects, doubling the number. The amount of investment used by the city increased by 40 percent year on year.
Zhou Mingsheng, Zu Wiang and Liang Shuxia of the Jiangsu provincial Party school wrote up an article the year before last. Titled “The Challenges, Problems and Countermeasures of Jiangsu in Upgrading its Industries by Using Overseas Capital”, the article said that as the international financial crisis has brought about profound changes to the global economy, Jiangsu’s advantages have begun to weaken and some problems have cropped up; the traditional way of using overseas capital has met with obstacles. All these have made it urgent to shift from quantitative expansion to quality improvement.
In fact, the trend of using more overseas capital in the service industry has already shown up. It was learned that of the 7.02 billion U.S. dollars of overseas investment used in 2015, 2.67 billion U.S. dollars or 38.1 percent went to the service industry. This is more evidence in Nanjing. Data provided by the Nanjing city bureau of commerce show that the amount of overseas capital used in Nanjing’s service sector rose from 45.7 percent in 2006-2010 period to 63 percent in the 2011-2015 period. Emerging industries and modern service industry have become the new destinations of overseas capital in Yancheng. Last year, the number of projects that used overseas capital came to 62, accounting for 46.6 percent, 3.1 percentage points higher than the previous year. The financing leasing and other modern service industries increased by 8.6 percent year on year, accounting for 44.0 percent of the total overseas capital in the service industry.
Better soft environment when low cost and preferential policies not attractions
Many overseas business people hold that the days have gone when China relies on low cost and preferential policies to attract foreign capital. In order to attract high-end overseas capital and let them take “roots” in China, it is imperative to create a multiple dimensional “soft environment” to end the “tough restrictions”. What they voiced most is to raise the strength of protecting the intellectual property rights and create living facilities that are more humane. Some government officials said that after overseas investors returned to “national treatment”, it is necessary to create a most appropriate business environment, which is not necessarily cheap.
“The rising cost, cancellation of preferential treatment – this is a return to the market and we can accept it. But if the intellectual property rights cannot be protected, it is vital for us,” said a foreign businessman who declined to be named. His company boasts more than 100 patents and the number is increasing at an annual rate of a dozen. It has often been harassed by right infringement. But it is difficult to acquire evidence and the litigation cycle is long. All these have put his company in a dilemma.
Some foreign business people say that they used to look good China’s low cost and preferential policies. But these advantages are disappearing and they are seeking new attractions in China. One the one hand, China has to improve the business environment by taking strict measures to protect their intellectual property rights and on the other hand, it is necessary to improve the matching conditions of their living environment, that is, enterprises used to pursue “settling” in the country, but now they value more how to take “roots” in the country.
As a Hong kong enterprise leader and deputy general manager of the comprehensive management center of the Golden Wheel Tiandi Holdings Company Limited，Chu Ling has lived in Nanjing for years. She said that preferential policies are short-lived and the “soft environment” is sustainable, from law to food and lodging and travel – these must be given enough attention. Take education for instance, she said that Hong Kong business people complained that their children cannot get an education of international standards and that even affected their investment plans.
Chu Ling gave a special stress to the demand of the new generation of overseas business people. There are several cases she knew about. The children of the older generation of Hong Kong business people have come to succeed their fathers and grandfathers. But after trying for a period of time, they chose to leave on the ground that they could adapt to the environment. “Although their reasoning is negligible, such as there is no high quality bar, we should take these into consideration and make efforts to improve it. We must really start from the general perspective and take real action from what is considered as small,” Chu said.
The Qisda Corporation in Suzhou is a Taiwan capital enterprise employing 10,000 people. Its CFO Peng Renhong said the mainland mainly considered preferential policies, but now the situation has changed. I hope the related departments will care about the special demand in living and, under the condition of not violating the principles, provide well-catered amenities. “The overseas business people have to live in the localities, after all. For us, a healthy and comfortable living environment is more important than preferential policies,” he said.
Deputy director of the Suzhou city bureau of commerce Liu Lu said that the Third plenary session of the 18th Party Central Committee put forward reform for 50 projects, aimed at building a new open economic system. Some overseas business people have already nosed the future business opportunities. Even if the original low cost and preferential policies are no longer existing, they have the intention of deploying for sharing the reform dividends of the next round of reform. Government departments at all levels should adopt corresponding measures to improve the “soft environment” to break through the “tough ones”.
First of all, it is necessary to raise the transparency and fairness of policies andlaws. There must be full preparations before a new law is promulgated, soliciting comments broadly. The promulgation of the New Labor Contract Law is a good example in case. The experience should be learned.
On the basis of transparency, there must be better supervision over law enforcement, paying particular attention to infringement of intellectual property rights. China has had a sound law system on overseas investment. But there are many loopholes in enforcing the laws. So it is not enough to have laws. There must be a supervision and examination system to ensure the enforcement and implementation of the laws.
Industry insiders pointed out that, through more than two decades of development and opening up, all kinds of policy advantages are gone. The overall reform determines that it is impossible to rely purely on preferential policies, yielding of taxes to attract overseas capital. It is imperative to have new thoughts. In the very complicated situations at home and abroad, China should use the “soft tectics” to attract foreign capital. The government should act as a resources integrating merchant to create a “though not cheap but the most appropriate” environment for development. (by Zhang Zhanpeng)