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OECD Investment Policy Reviews: China 2003

Progress and Reform Challenges

image of OECD Investment Policy Reviews: China 2003

China has become one of the world's leading destinations for foreign direct investment (FDI) since the Chinese government opted to reform the economy and open it to foreign trade and investment. Inflows of FDI, which accelerated at the time of China's accession to the WTO in 2001, have been an important factor in promoting rapid economic growth and technological progress. However, there remains substantial potential for a greater inflow of long-term, high-technology, high-value-added FDI from OECD countries.

This study records and evaluates the development so far of an enabling environment for FDI and suggests policy options designed to improve it further. Foreign investors were initially attracted to China by cheap land and labour, the promise of a large market and, to some extent, by fiscal incentives. To sustain and increase large-scale FDI inflows, it is now necessary to move towards a more strongly rules-based attraction strategy, based on structural elements which will include a sound legal system, transparent laws and regulations, streamlined investment approval procedures, good corporate governance, effective competition policy and a sound financial system.

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Overview of Progress and Policy Challenges

China has made progress in providing a business environment conducive to foreign direct investment (FDI). The challenge now is to move towards a more rules-based policy framework that will attract high-quality FDI from OECD countries. The OECD proposes a number of policy options for the Chinese government to consider in further developing such a framework. These include additional streamlining of the investment project approval process, reconsideration of unnecessary sectoral restrictions on foreign investment, and measures to increase transparency and strengthen the rule of law...

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