USTR Report: Investment

Monday, December 18, 2006 12:07

The shortest (only half the length of the Executive Summary), and most recently reported on, section of the USTR report is on investments.

With the recent changes in investment rules, and the reported trend of Chinese turning away from foreign investment, this section will probably receive more interested than many of the other sections as investors from all backgrounds look to understand from the USTR’s perspective what the future holds for them.Core to this section is the contention that the Chinese have failed to meet commitments in the following manners:

1) Domestic Industry interests are being protected through various measures

  • Encouragement of technology transfer as part of investment
  • Requiring use of domestic technology after specific time frame
  • Restriction on imported products used in new vehicle

2) Rules requiring knowledge of and experience in the industry that a target occupies

  • Steel and Iron Development Policy

3) REquirements to use domestically made equipment and technologies when domestic suppliers exist

4) Most recently, MOFCOM in partnership with several other organizations issued new rules applicable to the acquisitions of Chinese entities by foreign investors whereby MOFCOM will approve transactions that it believes “impact national security” or involve a famous Chinese brand

Wrap-up:
With all the coverage in the media recently on the new rules, there is little left to the imagination about the fear that the Chinese government (and people) are turning away from foreign investment.

Macroeconomically, the rules above and the recent releases do make sense for several reasons:

  1. In the end, investments must offer medium to long term benefit to China, and more specifically the chinese people. companies are no longer going to be able to easily get into the market and flip their investments.
  2. Investments in the industrial sector will need to offer ways for Chinese companies to grow technologically and geographically.
  3. Investments seen as cherry picking sector leaders will be heavily frowned upon, especially if the investor is offering little in terms of organizational/ market development

There are certain investments that will be affected, and the Chinese government just today said there are 7 sectors that will continue to be protected, but given the backlash foreign governments have created in response to Chinese investment, it is no wonder the chinese are no starting to keep some of the crown jewels for themselves.

For the last 15 years, china has been an all you can eat buffet for foreign persons and entities that wanted to invest in China, and those that took the chance to come in early and develop an opportunity were rewarded.

Opportunities still exist in many areas for investment, but the government is getting much more selective (can you blame them) about who comes in, how much control they have, and where the investment is committed.

for those looking to invest, the Southwest and northeast are still geographic areas that the government is looking for investment, and at the same time, the government is actively courting high technology investments … so to say the ride is over, is to fail to fully understand the environment, and once again, those who take the risks will be rewards

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