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FDI&ChinaToBenefitfromtheBoomingEconomyofChinaSpeaker:Mr.Shen,LinchangAttorneyatLawofShanghaiPromiseLawOfficeFounderofChinaForeignDirectInvestmentForum(CnFDI).*TransnationalInvestmentConsulting.*IPLegalservice.*CorporateLegalService*InternationalCommercial(Contract)Litigation:yzslc@yahoo.com.cnSkype:Charlie_soasDISCLAIMER:Itshouldbenotedthatthematerialinthispresentationisdesignedtoprovidegeneralinformationonlyandshouldnotbeconstruedaslegaladviceonanyparticularmatter,whetheritbelegal,proceduralorother.Theauthorexpresslydisclaimallliabilitytoanypersoninrespectoftheconsequencesofanythingdoneoromittedtobedonewhollyorpartlyinrelianceonthewholeoranypartofthecontentsofthispresentation.Allrightsreserved.Ⅰ.InflowofFDIinChinaA.OverviewofInwardFDIinChina1.InflowofFDIfrom1995to2006(Billionsofdollars)41.846.952.753.560.672.469.5010203040506070801995-2000annualaverage200120022003200420052006Source:UNCTAD,WorldInvestmentReport20072.TheTopTenSourcesofFDItoChina,1-11,2007(Billionofdollars)22.43214.1663.2292.992.4642.2212.1541.5991.4341.046HongKongVirginIslandSouthKoreaJapanSingaporetheUSCaymanIslandsWestSamoaTaiwanProvinceMauritiusSource:MinistryofCommerceofP.R.C.3.Cross-borderM&AinChina,2004-20066.778.256.720246810200420052006Source:UNCTAD,WorldInvestmentReport2007(Billionsofdollars)B.PolicyDevelopmentsDefinitely,governments’policytowardsFDIplaysanimportantroleinattractingFDI.Nowlet’sdiscussthepolicygoverningFDIinChina.In1950sand1960s,duetothewellknownpoliticalreasons,Chinawasisolatedfromwesterncountries,logically,Chinashutupthedoortowesterninvestors.Since1978,Chinahasadoptedreformandopeninguppolicy.TodevelopChina’seconomy,ChinesegovernmentencouragesFDI.In1979,ChinapromulgatedSino-ChinaEquityJointVentureLaw;in1986,ChinapromulgatedForeignCapitalVentureLaw.Inordertoattractforeigninvestment,Chinagaveforeigninvestorsavarietyoffavorabletreatments,suchastaxreduction,cheaperlandetc.Inaddition,nearlyalllocalgovernmentssetupinvestmentpromotionagencies.Tocompeteforforeigninvestment,manylocalgovernmentsevengavemorefavorabletreatmenttoforeigninvestorssomeofwhichwereillegal.Furthermore,AfterChinajoinedtheWTOin2001,ChinareducedorabolishedsomeperformancerequirementsandotherrestrictionsonFDI.1.EmphasisonQualityratherthanQuantityRecently,ChinesegovernmentisincreasinglyemphasizingthequalityratherthanthequantityofinwardFDI.ChinaencouragesFDIwithadvancedtechnologyormanagerialexpertise.Atthesametime,ChinaincreasinglyrestrictstheFDIwithhighenergy-consumptionandenvironment-pollution.WhydoesChinaalterthepolicygoverningtheFDI?Inthepastthreedecades,Chinahaswitnessedrapideconomicgrowth,however,suchgrowthwasonthecostofnaturalresourcesandenvironmentpollution,Chinesegovernmentrealizessuchaneconomicgrowthmodelcannotlastlong.Additionally,after30yearsofeconomicdevelopment,especiallyduetotheconsecutivetradesurplus,Chinahasaccumulatedastronomicalforeignreserves.Unlike30yearsago,thelackofcapitalisnolongeraproblemforthedevelopmentofChineseeconomy.2.UnificationofTwoIncomeTaxSystemsIn2007,Chinapromulgatednewcorporateincometaxlawandunifiedtwoincometaxsystemsforforeignaffiliatesanddomesticenterprises.ThenewcorporateincometaxlawtookeffectinJanuary1st,2008.3.ToControlCross-borderM&AinChinaJustasmentionedabove,cross-borderM&AinChinaspurredgreatcontroversy.AlthoughM&AaccountedforasmallshareofthewholeinwardFDItoChina,theM&AtargetswereusuallythereputableandtopChinesecompaniesintherelevantindustries,foreigninvestorscanshapemonopolypositioninChinesemarketsbycross-borderM&A.Furthermore,someChinesetraditionalfamousbrandsdisappearedafterM&A.Manypeopleworryaboutthenationaleconomicsecurityandstronglysuggesteffectivelycontrolcross-borderM&AofChinesecompanies.Consequently,in2006,sixministriesofcentralgovernmentjointlyenactedaspecialregulationtocontrolcross-borderM&AinChina.Accordingtotheregulation,allcross-borderM&AofChineseenterprisesaresubjecttotheexaminationoftheMinistryofCommerce.C.Prospect:OptimisticNonetheless,inmyview,theprospectofinwardFDItoChinawillstillbeoptimistic.Thereareseveralfactorstosupportmyjudgment.1.GlobalizationFirstofall,globalizationisanirresistibletrendin21stcentury,noonecanchangethetrendofit.Nocountrycanisolateitselffromtheworld.Everynationcanonlyadapttothetendency.Globalizationwillinvolvealleconomiesandintegratethemintoasingleglobaleconomy.Transnationalcompaniesindevelopedcountrieswillcontinuetoinvestabroad.Whatismore,developingcountrieswillbecomemoreandmoreimportantsourcesofFDI.2.China:AHugeMarketwithGreatPotentialSecondly,Chinahasahugemarketwithgreatpotential.Chinahasapopulationwhichismorethan1.3billion,andthemiddleclasshasgrewquicklyafter30yearsofdevelopmentofChineseeconomy.ChinawillremainamagnetforFDI,especiallyformarket-seekingFDI.3.AffluentHumanResourcesFurthermore,Chinahasamplehumanresources.Everyyear,morethan6millionstudentsgraduatefromuniversitiesandcolleges.Inruralarea,thereexistahugepoolofpotentiallabor.SuchhumanresourcesreservecanmeetalldemandsofFDI.4.TheInvestmentEnvironmentwillContinuetoBeImprovedI