NEW AND IMPROVED: Volkswagen reveals its new hybrid car at the 2012 North American International Auto Show on January 9. Key components of new energy vehicles are one of China's newly added encouraged items for foreign investmentI (XNHUA/AF)

As part of ongoing efforts to attract foreign capital into China, the Central Government has adopted more open policies toward potential overseas investors.

Compared with its predecessor, the 2011 Catalogue Guiding Foreign Investment in Industry, effective January 30, increases the number of items in the category of encouraged investment, reduces the number of items in the categories of restricted and prohibited investment and eliminates the limit of shares by foreign investors in some sectors. For the items of encouraged investment, foreign investors will enjoy related favorable policies. For example, in central and western regions, foreign investors can receive a 15-percent corporate income tax break.

"To adapt to the new situation of deepening economic globalization, China will adopt a more active and open strategy, expand more sectors of opening, promote reform and development via opening and create a better investment environment," said a news release from the National Development and Reform Commission (NDRC).

The catalogue is an important industrial policy that China uses to guide foreign direct investment. Since its introduction in 1995, it has been revised five times to meet the needs of economic development and opening up.

Ten years have passed since China's accession to the WTO. Now that China is closely connected with the world economy and its investment environment has improved continuously. As a result, the scale of foreign investment has expanded, ranking second in the world. Foreign investment has played an active role in promoting China's economic growth, creating jobs, upgrading industrial structures and expanding foreign trade.

However, China still faces various challenges in utilizing foreign investment. According to a release from the NDRC, in China, prices of capital goods rise rapidly and upgrading of industrial structure is urgent. In the international community, the global financial crisis has created the need to make major changes to the global economic structure. These changes require China to further optimize the structure of foreign investment and improve the efficiency of utilizing foreign capital. This is one of the reasons that China is creating a more welcoming environment for foreign investment.

Another reason is that since foreign investment is an important part of China's opening-up process, the Chinese Government hopes to appropriately readjust its industrial policies for foreign investment by revising the catalogue, actively guiding foreign investment and promoting ongoing economic restructuring, and transforming the country's economic growth pattern.

Serving the restructuring

In 2012, with the U.S. dollar still relatively weak and the European debt crisis far from over, international capital will favor the Chinese market. Facing the growing scale of foreign investment, China must utilize this favorable factor and continue to constantly improve the efficiency of introducing foreign investment.

The catalogue intends to guide foreign investment into high-end manufacturing industries, strategic emerging industries and the recycling economy, which are the key sectors during the restructuring of petroleum and chemical industries, and also pillar sectors of future development of industries.

To promote upgrades to the industrial structure, the NDRC will guide more foreign investment into industries such as modern agriculture, new technologies, advanced manufacturing, new energy and modern services to develop a modern industrial system. By expanding the service sector and enhancing coordination of primary, secondary and tertiary industries, the commission will encourage transnationals to increase input in research and development (R&D) in China, establish R&D centers and cooperate with Chinese companies in R&D to improve ties with foreign investors and enhance China's independent innovation capabilities.

The catalogue also restricts or prohibits foreign-funded projects featuring "high pollution and high energy and resource consumption." In order to curb access capacity and redundant construction, the catalogue removes industries like polycrystalline silicon and coal chemical from the category of encouraged investment.

Wang Haisheng, an analyst at Huatai United Securities Co. Ltd., said throughout the world, polycrystalline silicon projects have been excessive. At present, the production capacity of the world's top five photovoltaic enterprises related to polycrystalline silicon can fully satisfy the market demand. Moreover, the development of Chinese polycrystalline silicon industry has already reached the world level, stifling the need for foreign investment.