During our research we discovered that, amid changes in global economic and trade development, in Gansu province, a late comer in open economy, some underlying problems have been cropping up: small in total amount of foreign direct investment inflows, quality of these investments and business environment in need of improvement, and growth rate, structure and efficiency of these investments incompatible with local economic development. It is, therefore, urgent to discuss and resolve such problems as how to make Gansu more attractive to overseas investment.
Overseas capital inflows may boost regional economic development. Due to poor infrastructure, geographical and natural factors, western China has attracted limited amount of overseas capital and those that have been attracted have made limited contributions to local development. This makes it difficult for investment to play a role in narrowing economic disparities. And on the contrary, investment may even exacerbate such disparities. These phenomena are more apparent in Gansu than in other Chinese provinces, leading to an extreme imbalance of foreign investment in terms of industry, location and amount.
Problem I: foreign investment imbalanced regionally
According to Gansu Provincial Bureau of Statistics, regional distribution of overseas capital inflows is polarized, with cities that have the most overseas investments accounting for half of the provincial total. Even in the three economic development areas of Hexi Corridor, Longzhong and Longdongnan, foreign-invested projects are extremely imbalanced in terms of number and type. In many cities, there is zero overseas investment. In specific, half of foreign projects are concentrated in Lanzhou city, those in Jiayuguan, Wuwei, Zhangye and Jiuquan each accounts for 9.09 percent and those in Qingyang, Baiyin and Lixia accounts for only 4.55 percent. The rest of the six prefectural-level cities register zero overseas investment inflows.
Problem Ⅱ: industries that have attracted overseas capital imbalanced
In China, at present, multinational corporations mainly invest in capital-, technology- and knowledge-intensive industries. But in Gansu, foreign investors tend to invest in high-energy-consumption and high-polluting industries. According to the Statistical Yearbook of Gansu Province 2016, overseas investment is concentrated in agriculture and manufacturing. But no overseas capitals have invested in information transmission, computer service, software, culture, sports, entertainment and real estate.
Problem Ⅲ: imbalanced sources of overseas investment
According to the Department of Commerce of Gansu Province, currently, overseas investors in Gansu come from 14 countries and regions, including Hong Kong, Singapore, Denmark, Samoa, Britain, British Virgin Islands, the United States, Australia, Taiwan, the Netherlands, Seychelles, Canada, Greece, United Arab Emirates, and Japan.
In the 12thFive-Year-Plan period (2011-2015), overseas investment came mostly from Hong Kong, Taiwan and Singapore, accounting for 56.6 percent of the total. Only a few came from the United States and Japan, accounting for 0.92 percent and 0.02 percent respectively. In 2016, of the 155 overseas-funded enterprises covered by the annual report, 68 came from Hong Kong and Taiwan, accounting for 44 percent. The overseas direct investment from developed countries used was very limited, playing a limited role in pushing the economic growth of the province.
Gansu is an important thoroughfare of the ancient Silk Road, as well as the Eurasian Continental Bridge, linking the Asian-Pacific region, Eurasia and Atlantic region in the Belt and Road initiative. Therefore, Gansu has advantage in its opening up. But such advantage has been suppressed by the following factors:
First, the weak economic foundation and limited market.
On the one hand, the preferential policies for attracting overseas investment are likely to have effect in areas with a big economic scale. But such policy effect is greatly discounted for areas where the real market output level and conditions are poor under limited economic scale. Although Gansu has been persisting in exchange market for technology and for funds, overseas investors do not have the strong will to invest in Gansu, as the province is small in economic scale, weak in economic foundation, low in per capital income and limited in real markets. On the other hand, the lack of continuity in economic models and the segmentation of the markets have made it hard to form the scale effect. In addition, the traditional consumption propensity has provided overseas investors with limited local market and made the marketing costs high.
Second, Gansu's natural resources advantage has been reduced and enterprises are slow in transition, making it hard for overseas enterprises to become big and strong.
Natural resources have for years been Gansu's main conditions for attracting overseas investment. But, with the development and changes in the international and domestic economic situation, such advantage has been dwindling. This, plus the slow transition of enterprises and the lag in institutional change-over, the lack of technical innovation and incompleteness in industrial structural adjustment, the high transportation charges and trading costs – all have become the barriers holding up overseas investors from getting access to Gansu.
Third, the poor quality of personnel making Gansu less attractive to overseas investors.
The abundant cheap labor is one of the advantages to attract overseas capital. But the education level of employees is generally low and the skills are not comparable with those in China's eastern part. The general low quality of the labor resources cannot satisfy the need of overseas investors and that has, to a certain extent, weakened the cheap labor advantage.
Besides, the strong movement of labor to the eastern part of China has raised the abilities of eastern China in attracting overseas investors, who can obtain cheap labor from the western part without bearing the transport cost and at the same time make use of other advantages of the eastern part. Cheap labor in western China has become the advantage of eastern China in attracting overseas investment. This has, to a large extent, restricted the development level of overseas investment in Gansu Province.
Fourth, the way of attracting overseas capital is not diversified and the scale of overseas capital used is small, making overseas-funded enterprises lacking the staying power for further development.
In recent years, the overseas enterprises investing in Gansu have mainly eyed the industries that use resources, commercial, trade and service industries. The direct overseas investment is mainly concentrated in the traditional overseas-funded enterprises. There are no innovative investment enterprises, joint stock companies, asset recapitalization, stocks and financing, BoT and project financing.
According to the Department of Commerce of Gansu Province, at present there are only 11 of the world's top 500 operating in Gansu. Of the 155 overseas-funded enterprises in operation, the majority of them have a registered capital of less than 5 million U.S. dollars and are mostly engaging in small processing and commercial and trade services, with mediocre efficiency and no staying power for development. At the same time, overseas investors have mainly invested in medium-sized and small projects, with the amount of investment used in each project averaging about 720,000 U.S. dollars, unable to put them on a par with the national average level of 1.8 million U.S. dollars.
We found that many scholars and experts are of the view that Gansu's economy, under China's new normal, is entering into a new stage of development characterized by growth drive restructuring and change-over in development model. The Belt and Road Initiative has brought about the maximum strategic opportunities for Gansu to develop an open economy. Gansu should, therefore, make greater efforts to carry out reforms in the institutional mechanisms and business environment, raise its own strength and direct overseas investors toward advanced manufacturing, modern services, high and new technology industries, modern agriculture, new energy, energy conservation and environment protection and other strategic and emerging industries. It should also display the carrier role of the state-level economic zones in accepting the industries transferred from eastern China and in attracting overseas investment. It should strengthen exchanges with countries along the Belt and Road, with great efforts to attract investment from the central and west Asian countries.
Gansu should do the following:
Optimize regional investment environment. First of all, it should strengthen the human resources input into infrastructure construction. Suo Guoyong, deputy director of the Marxism Institute of the Gansu Provincial Academy of Social Sciences, said that although Gansu has invested some money and technology in infrastructure, in general, it is not enough. The better the regional infrastructure, the more eager the investors are to invest.
Optimize industrial structure and stimulate industrial upgrading. In recent years, Gansu has been concentrating on the secondary industry represented by manufacturing to the neglect of the tertiary industry represented by the service industry, hence the imbalance of the industrial structure. Gansu should make active efforts to adjust the industrial distribution to enable more overseas investment to flow into the tertiary industry that will bring great efficiency to the province.
Formulate reasonable plans to attract and train competent personnel to intensify the personnel support. On the one hand, it should invest more in education, deepen educational reform and raise the quality of personnel training. On the other hand, it should optimize the environment for attracting competent personnel and formulate reasonable plans for attracting and training competent personnel.
Encourage various places in the province to develop their own specialty economies to stimulate regional development. Luo Zhe, director of the Regional Economics Institute of the Gansu Provincial Academy of Social Sciences, voiced the view that the uniqueness and specialties are the most attractive and the same is true with the regional economy. Government departments should encourage all areas to develop their own specialty economy, such as Dunhuang tourism, Lanzhou's chemical industry, so as to develop their own regional economy and enhance their abilities of attracting overseas investment.
Encourage mass entrepreneurship and innovation. This is an important means to improve the core competitive power. Luo Zhe said: "Mass entrepreneurship and innovation is not merely a slogan. It should serve as a guiding principle for government departments and enterprises in their work. Gansu should, therefore, encourage innovation and build low-cost, open and good environment for serving the drive of mass entrepreneurship and innovation and provide enterprises and individuals with resources necessary in making innovations and at the same time inject new blood into the development of enterprises and various regions."
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