FOREIGN DIRECT INVESTMENT IN CHINA: THE DO'S AND DON'TS

Over the past three decades, the economic reforms in China have led to an unprecedented change in the nature of the business environment in the country. Foreign Direct Investment (FDI) has been highly encouraged by the Chinese authorities over the recent past years, and measures have been taken to make the investment climate more favourable and less bureaucratic.

FDI: Do’s in China

China welcomes FDI that represents a commitment to economic development and technical exchange. FDIs are welcome by the Chinese Constitution, as well as by the main laws and regulations for foreign investments in China, such as:
- the General Principles of Civil Law of the People’s Republic of China (Chinese Civil Code);
- the Administrative Litigation Law of 1989;
- the Company Law of the People’s Republic of China of 2005;
- the Law of the People’s Republic of China on Foreign-Capital Enterprises of 2002;
- the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures of 2001;
- the Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures of 2000;
- the Law of the People’s Republic of China on Foreign-Funded Enterprises of 2000;
- the Anti-monopoly Law of the People’s Republic of China of 2008;
- the Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Entreprises.

The Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises list the major policy objectives of the People’s Republic of China Government regarding FDI, as follows:
· To encourage foreign investment while improving the overall quality and industrial composition of investment projects, particularly in high-technology sectors;
· To encourage investment in environmentally friendly and energy-saving technologies;
· To restrain and eliminate policies that exclusively serve to promote exports, and to address China’s trade surplus;
· To encourage balanced development between the coast and the less-developed western, central, and northeastern regions; and
· To protect “national economic security” and solely carefully open sensitive and strategic industries to FDI.

FDI: Don’ts in China

As per the Chinese legal framework FDI is forbidden in sectors considered crucial to national security; that endanger the state national security; that damage the public interest; that cause environment pollution and damage to natural resources and public health; that use large farmland and are hostile to the protection and development of land resources; and that endanger the security and normal function of military facilities. In brief, the prohibited sectors are: news agencies, broadcasting and programming, press and audiovisual products, arms production and manufacturing, and the mining and processing of certain minerals.

Furthermore, the new Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises lists “critical economic sectors” in which China should maintain strong state control and restricts foreign participation, such as automotive, chemical, construction, electronic information, equipment manufacturing, iron and steel, nonferrous metal, science and technology, survey and design sectors (Invest in China, SASAC’s website). Moreover, the Ministry of Commerce has the power to review foreign acquisitions that may have impact on “national economic security”. Last but not least, as per Article 31 of the Anti-monopoly Law of the People’s Republic of China, the Chinese Government has the discretion to exam foreign investment concentration transactions that may affect the national economy and national security.

Cross-borders flows of FDI have been a feature of the globalization era. FDI may play a leading role to trade and industry diversification, generating employment and strengthening the economic local system and China has made substantial strides in opening up their economies to FDI.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

FOREIGN DIRECT INVESTMENT IN BRIC COUNTRIES: HISTORICAL OVERVIEW

Foreign Direct Investment (FDI) is an important source for the development of strategic sectors of the BRIC countries. In Brazil, since the late 19th century, FDI became more and more important. After the II World War, FDI played a key role during the Brazilian industrialization process. Much of the Brazilian history shows that the country has relied upon foreign capital to finance its development and economic growth. In recent years, foreign investments inflows are attracted by the large Brazilian market and the rapid economic growth of the country, besides the fact that Brazil will host the 2014 World Cup and 2016 Olympics.

In Russia until the 1990s, the amount of FDI flowing into Russia remained relatively flat. At the opening of this new millennium, Russia emerges as a country of opportunities for FDI. In fact, FDI inflows has increased over the last years in Russia thanks to its tremendous natural resources and growing domestic market. Russia’s new status as WTO member will also complement its internal economic reforms and improve foreign investment climate towards transparency and predictability in business transactions in the country.

During the course of the 1990s, the Government of India initiated economic and financial reforms aimed to progressively integrate Indian economy with the global economy. FDI is recognized by the Indian Government as an important driver of economic growth and development. As a result of the various policy initiatives taken, India has rapidly changed from a restrictive regime for foreign investments to a more liberal one.

Last but not at all at least, China has shifted from a closed, state-planned economy to an increasingly open and internationally integrated marketplace, over the past three decades. During the 1980s, FDI inflows grew steadily but remained relatively low mainly confined to joint ventures with Chinese state-owned enterprises. In the mid-1990, FDI became quite important for the Chinese economy and new rules and regulations have been issued accordingly. When China became member of the WTO in 2001, many new laws and regulations have been issued after. FDIs in China have benefited from this liberalization trend, specially the distribution, logistics, financial services and telecommunications sectors. Given China’s projection on the global arena, this movement is only expected to increase in the near future, as China continues to establish its position as one of the world’s foremost economic growing power Nation.

FDI in BRIC countries still remains bureaucratic and complex; however every BRIC country shows the same serious intent to make the investment climate more and more favourable in the near future.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advogada, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

Some Questions Before Entering Into BRIC Countries

Brazil, Russia, India and China, the BRIC countries, which the Chinese also calls jinzhuan siguo – four golden brick nations (金砖四国) –, are challenging the received notion of globalization (The trillion dollar club, 2010). BRIC countries are moving fast and growing fast too. And, yes, there are great opportunities in these fastest and large growing markets. BRIC countries occupy a key position on the global economy; therefore companies that are not in some way present in BRIC markets are not considered as globalized firms. Before entering into BRIC countries, companies have to consider some very important issues, in order to avoid a future failure that may be quite costly. Some questions have to be answered before moving to BRICs...

 

Some Questions before Entering into BRIC Countries....

-              Do you have enough money to make your venture into BRICs a success? -              Do you know which of the BRIC countries you will enter first? Why? -              Do you know how the competition in the target BRIC market is? -              How will your product or service add value for the customer in the target BRIC market? -              How will you distribute and promote the product or service in the new market? -              Do you understand the legal aspects of the target BRIC market? -              Do you have personnel to handle and support a venture into BRIC? -              If not, how long will take to train the existing or new personnel?

Good Luck on BRIC Countries!

Ligia Maura Costa. Partner at Ligia Maura Costa, Advogada, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

Why Look at BRIC Countries

The new millennium has marked the beginning of a new era. The Giant is awaking (Brazil), the Bear is coming back (Russia), the Tiger is rising (India) and the Dragon is roaring (China). Here come the BRIC countries. For many years now, the world has been watching with excitement to BRIC’s rapid economic growth. BRIC countries have an insatiable desire for investments, for goods and for services. In fact, the world’s demand for energy and commodities, the singularity of the outsourcing service and the globalization that has allowed capital to become increasingly mobile, bringing countries’ economies closer, helped to speedy BRIC’s growth. BRIC’s economic miracle can take the rest of the world’s breast away, or almost. The rise of BRIC has created a different world order, much more complex and dynamic. BRICs together represent almost more than half of the world today’s population. These leading emerging countries and rapidly growing economies represent a total market of over 2.7 billion people. Besides, BRIC’s major cities are full of life and joy! No doubt that this number of people represents an enormous market and purchasing power. Shiny new office buildings, consumer expensive brand products from all over the world, superb residential towers… Actually, the wealthy of the world’s economy over the next decades depends on what will happen in these countries in the near future, which in turn will foster global political and socio-economic changes. BRIC countries are a new landscape of opportunities. The assumption seems unavoidable: any person simply must at least try to understand how to get into BRIC countries. And, yes, there are great opportunities in these fastest and large growing markets. BRIC countries markets are the markets that have the highest potential to grow nowadays, providing sufficient room for both domestic and foreign companies to spread further. That’s the reason why it is so important to look at BRIC countries.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advogada, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.