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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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The Legal System and FDI

Laws relating to FDI have become increasingly precise. Moves towards strengthening judicial independence and training more judges are to be welcomed. Improvements could be made in consulting stakeholders, including foreign investors, during the process of drafting legislation. Available legal recourses include conciliation and arbitration both within and outside China. Intellectual property rights (IPR) protection was introduced into Chinese law after economic reform began in 1978. IPR laws, which give equal rights to domestic and foreign-invested enterprises, protect patents, trademarks and copyrights. Progress has been made in providing such protection, though enforcement remains incomplete. Corruption persists, despite legislation against it, and the Chinese government is working with the OECD on improving enforcement.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...

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