Intervention mechanism needed to curb foreign investment from leaving China

By Wang Jiamei Source:Global Times Published: 2017/3/9 22:23:39

Given a number of capital withdrawal cases by high-profile overseas companies that have occurred recently, the topic of whether foreign investment is fleeing China has again provoked a heated discussion.

In January alone, US hard-disk drive manufacturer Seagate decided to shut down its factory in Suzhou, East China's Jiangsu Province, resulting in the loss of more than 2,000 jobs; McDonald's Corp sold the majority interests in its Chinese mainland and Hong Kong business to State-backed conglomerate CITIC and Carlyle Group for up to $2.1 billion; and US tech giant Oracle announced a plan to lay off over 200 employees at its Beijing branch.

Recent figures also provide some  additional insight. In January, actual foreign investment in China was $12 billion, a decrease of 14.73 percent year-on-year, according to data published by the Ministry of Commerce on February 16.

While some may argue that monthly data is not sufficient to represent a long-term trend, there is no denying that China has been losing its position as the "world's factory." Rising production costs, climbing labor salaries and increasingly fierce market competition have diminished the country's appeal for multinational companies, many of which may opt to move to other inexpensive countries and regions.

However, whether or not there is or will be a mass investment withdrawal by foreign companies in the future, it is necessary for China to establish an early warning and intervention mechanism for foreign investment fleeing the country.

In the past, in order to attract foreign capital, China adopted a very low investment threshold and offered a number of favorable policies for multinational companies, with some local authorities even refunding part of the taxes levied on foreign companies.

Now there should be certain intervention and control measures in place to prevent foreign companies from leaving China easily after taking advantage of the country's huge amount of resources. Certainly such measures should be taken through legal means.

Under an early warning and intervention mechanism, a warning system for foreign companies in China should be set up to comprehensively forecast the movement trend of multinational companies and set warning levels by analyzing their operation conditions, sources of funds and industry development. Given experiences from other countries, China might also want to levy taxes on investment withdrawal by foreign companies and work out necessary regulations to effectively intervene when foreign companies withdraw capital from China.

On the other side, authorities should work on or propose alternatives for such withdrawal in a timely manner. Based on the full understanding of the purpose and motivation behind multinational companies' capital withdrawal, the relevant authorities should offer them better alternative plans by making good use of China's comparative advantages so as to persuade foreign companies to delay or give up their original plans.

In addition, another mechanism to guide foreign companies to make reinvestments should also be established. Some foreign companies may want to  shut down their factories only temporarily, not permanently. Once the market or their operation conditions improve, they may reopen the factories at any time. Therefore, it is also necessary to track those who have already withdrawn their investment and be prepared to provide favorable conditions to facilitate their reinvestment in the future.

The article is compiled based on remarks made by Li Yongku, member of the 12th National Committee of the Chinese People's Political Consultative Conference at a panel discussion in Beijing on Monday.


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