Foreign investment in China has continued robust growth despite the new corporate income tax policies. Figures from the National Bureau of Statistics show that paid-in foreign direct investment (FDI) (excluding investment from foreign financial institutions) totaled $74.8 billion in 2007, up 13.6 percent year on year. It was the 15th consecutive year that China's FDI ranked first among all developing countries.

In September 2006, the British Economist Intelligence Unit jointly issued a report with the Columbia University in the United States, claiming that though China ranked first in FDI, its position was being challenged by other emerging economies. "As China's salaries increase, the cheap labor force in some ASEAN (Association of Southeast Asian Nations) countries will attract more FDI," said the report. It forecast the FDI gap between China and the 10 ASEAN members would narrow in the near future.

France's BNP Paribas once contended that apart from ASEAN members such as Viet Nam and Indonesia, countries such as India, Brazil and Russia had been establishing all kinds of special economic zones, development zones or export processing zones, which diverted FDI that could have been invested in China.

However, judging by the current situation, those factors do not pose serious problems for FDI into China.

"China has enormous attraction for FDI," said Sun Changtai, Vice President of the Beijing Association of Enterprises With Foreign Investment. "When the global economy showed signs of recession, the Chinese economy remained robust and opened even further. Any knowledgeable man would not give up a huge market like China."

From quantity to quality

Though FDI is increasing, the number of newly established foreign-funded companies is declining. In 2007, a total of 37,871 foreign-funded companies were created, down 8.69 percent from the previous year. These figures show FDI to China has changed from quantity to quality, something which is being promoted by the government.

In March 2007, the Ministry of Commerce issued guiding opinions on FDI that stated the country should optimize the quality of foreign investment. Last year, the government made considerable adjustments to the policy guiding the utilization of foreign investment, promoting the change in the use of foreign investment from quantity to quality.

Last March the government revised the Corporate Income Tax Law, unifying the income tax rate on all enterprises on the mainland at 25 percent. In the past, the average income tax on foreign-invested companies was around 13 percent, whereas that on domestic enterprises stood at 30 percent. The new Corporate Income Tax Law set aside preferential treatment for foreign-funded companies, enabling Chinese companies to compete with foreign-invested companies at the same level. However, the raised income tax for foreign-invested companies adds pressure to their operations. Some feared foreign investment would be reduced or retreat from the Chinese market.