China’s Foreign Investment Encouraged Catalogue and Negative Lists as a Tool of Foreign Direct Investment Attraction

Jacek Jakubczak

doi:10.17951/h.2020.54.2.21-29

Abstract

Theoretical background: Due to the growing maturity of Chinese market the country needs to adjust its policy regarding foreign direct investment (FDI), i.e. to increase openness for FDI, to keep control over them in key industries and to influence their inflow in desired industries and regions. Adopting the negative-list approach and changes in both the negative list and encouraged industry catalogue provides tools for this challenge.Purpose of the article: The purpose of this article is to present how changes in China’s Foreign Investment Encouraged Catalogue and Negative Lists both in free-trade zones (FTZs) and at the national level are used as a tool for managing country’s FDI inflow.Research methods: Analysis of legal documents and reports as well as literature review.Main findings: Starting from the adoption of negative-list approach in FTZs in 2013, the negative lists had been drastically reduced both in reference to FTZs and national level. Those reductions lead to a decrease in China FDI restrictiveness index. FTZs were used as a testing area for both the negative list composition and negative-list approach itself. Negative lists allowed the state to keep control over FDI in key industries allowing, at the same time, greater freedom for foreign investors. Encouraged catalogue is used not only as a tool for attracting FDI from desired industries but also for addressing regional inequalities.

Highlights

Since Deng Xiaoping opened China for foreign investors, the inflow of foreign direct investment (FDI) has drastically changed the country’s economic landscape providing capital and technology and know-how
Apart from the analysis of the number of restricted, prohibited and encouraged industries enumerated on negative lists and encouraged catalogue, chain indexes were applied to present evolution of lists composition
This was followed by the analysis of the types of industries on the national prohibited list regarding the logic of the decision, in order to provide evidence to support the main hypothesis according to which changes in China’s negative lists and encouraged catalogue are used as a tool for FDI attraction allowing their industrial and geographical composition

Summary

Introduction

Since Deng Xiaoping opened China for foreign investors, the inflow of foreign direct investment (FDI) has drastically changed the country’s economic landscape providing capital and technology and know-how. The PRC, being the world’s largest recipient of FDI for more than twenty years China’s economic miracle is built on the investment-led growth model with the crucial role of both government and local government investments. FDIs were an important engine of this economic growth The development of internal market and the rise in domestic consumption changed the perception of foreign investors – low-cost export model became less attractive mainly due to rising labour costs, but China started to change into the most important market.

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