Chinese province Fujian's ties to foreign investment
Chinese province Fujian's ties to foreign investment
Liao Shaolian looks at one Chinese province's experience with
foreign capital inflows
Fujian, located in southeast China, was a relatively backward
Chinese province before the 1970s. This was because limited
investment was made in the province, and this was for largely
political reasons, that is its proximity to Taiwan. At the end of
the 1970s, however, Fujian (together with Guangdong) was selected
by the Chinese central government as a province where "special
policies and flexible measures" were to be implemented and
preferential treatment was to be extended to foreign investors.
By June 1994, some 14,424 foreign-funded enterprises had been
approved in Fujian. Of total approved foreign investments of
US$26.3 billion, $7.6 billion has already been put to use. Among
the 6,600 foreign-funded operating enterprises, 80 percent have
achieved satisfactory results. Since the beginning of the 1980s,
Fujian has been ranked second in China (after Guangdong) both in
terms of the number of foreign-funded enterprises and in
aggregate investment commitments.
The inflow of foreign capital has played an important role in
the economic development of Fujian.
Firstly, it has greatly increased the economic output of the
province. In 1993, foreign capital actually invested reached $2.9
billion, representing about three-quarters of the total planned
investments in fixed assets that year. The total industrial
output value of foreign-funded enterprises amounted to 32.6
billion yuan, or 38 percent of Fujian's total industrial output
by value.
Secondly, foreign direct investment (FDI) has helped to
increase government revenues. Foreign-funded enterprises paid tax
of 1.63 billion yuan in 1993, which was about one-sixth of total
tax collections that year.
Thirdly, FDI has improved the industrial structure of the
province's economy. Because of the successful introduction of
foreign capital, many key industries have been established, such
as electronics, chemical products, food processing, textiles,
metallurgy, machinery and so on. A large number of new products,
such as household electrical appliances, garments, footwear,
toys, jewelry and plastic products, have become competitive goods
on the world market. The export value of the foreign-funded
enterprises occupies about half of the province's total exports.
Fourthly, FDI has created more job opportunities. In 1993,
foreign-funded enterprises provided jobs for about 1.5 million
people.
After three successive years of rapid increase, 1994 saw a
slow-down in foreign capital inflows. In the first half of 1994,
both the number of newly approved investment projects and the
amount of investment commitments by agreements dropped by more
than 36 percent compared with the corresponding 1993 period.
Taiwan has been an important source of capital inflows into
Fujian. By the end of 1993, 3,215 enterprises tied to Taiwanese
capital had been approved, with a total of $2 billion actually
invested. In the first half of 1994, however, the number of
newly-approved enterprises decreased to 350, involving a total
investment of $0.5 billion, representing a decline of 36 percent
and 38 percent respectively compared with 1993.
Although a decline in FDI is not surprising after a long
period of rapid growth, it should be noted that some factors are
actually restricting the further introduction of foreign capital
and hence putting a brake on economic development in Fujian as a
whole.
Since the central government decided to open up other areas,
including the interior, Fujian is no longer one of the few
Chinese provinces being courted by the international investment
community. Today, the interior provinces of China have been given
more autonomy in approving foreign-funded enterprises and in
offering preferential treatment to foreign investors. With the
further opening-up of China, foreign investors now have more
places to choose in locating their investments. Hence, Fujian has
lost its previous special advantage over other regions.
After three years of high growth, Fujian's economy is now
facing bottlenecks due to inadequate infrastructure. Poor supply
of energy and transport facilities have become key factors
impeding the absorption of foreign capital.
Apart from the slowdown in international capital inflows, the
rate of actual utilization of foreign capital is also relatively
low. Between 1992 and mid-1994, foreign capital actually invested
was only 28.5 percent of investment commitments. The rate of
actual utilization of foreign capital for big investment projects
is even lower.
The structure of investments is still not satisfactory because
the introduction of international capital has not been well
planned and the local government has not been selective in
introducing foreign investment. For example, as many as 14 golf
courses have been approved and too many paper-mills and small
power plants are under construction. Also, in the industrial
sector, far too much investment has been made in assembly lines
for household electrical appliances while investment in upstream
and technology-intensive industries only occupies a small place
in overall investment commitments.
In the future, more emphasis should be placed on encouraging
international investment in key industries and in directing the
flow of foreign capital to conform to industrial policies and the
needs of long-term economic development. As Fujian has failed to
make a breakthrough in introducing foreign investment in the
production of energy, steel, precision machinery and
communications, which are badly needed for the province's
economic development, efforts should be made to readjust further
the structure of its foreign-derived investments.
Professor Liao Shaolin is with Nanyang Research Institute, Xiamen
University, Xiamen, China.
Window: After three years of high growth, Fujian's economy is now
facing bottlenecks due to inadequate infrastructure. Poor supply
of energy and transport facilities have become key factors
impeding the absorption of foreign capital.