The active utilization of foreign capital is an important content of propelling the western development program, revitalizing the old industrial bases in northeastern regions and promoting the rise of the central regions. We shall clarify different regional positioning and fully exert the driving and radiating functions of central cities based on the loading capacities of resources and environment, development advantages and development potential. We shall seize the opportunities brought by transfer of the international manufacturing industry and the transfer of foreign capital from eastern coastal regions, strive to promote the echelon transfer of foreign capital to the central and western regions and the old industrial bases in the northeastern regions, try to extend the scale of foreign capital utilization in the central and western regions and in the old industrial bases of the northeastern regions, and speed up the development of the characteristic enterprises with good industrial basis, resource advantages and competition advantages in the central and western regions and in the old industrial bases of the northeastern regions. Foreign investors shall be encouraged to enlarge investments in the service industries in the central and western regions and in the old industrial bases of the northeastern regions, and favorable policies shall be given in accordance with law in terms of market access qualifications, access procedures, business scope and so on.

(6) Realizing diversification of the methods of foreign capital utilization

The foreign direct investment shall be continuously considered as the key point of the work of foreign capital utilization, and a large scale in utilizing foreign direct investment shall be maintained. Foreign investors shall be continuously and actively attracted to set up new enterprises in China, and the existing foreign-invested enterprises shall be encouraged to re-invest with profits. We shall also exert the driving functions on domestic economy of the new enterprises set up by foreign investors in respect of employment promotion, technical advancement, industrial structural adjustment and so on.

We shall, according to requirements for the state industrial structural adjustment and enterprise reform and based on maintaining the state' control and development domination over some key industries and key areas, lead foreign investors to take part in domestic enterprise reorganization and reform by means of merger, acquisition, share purchase, re-investment, etc. so as to actively probe into the effective form of revitalizing state-owned assets. Except for the key areas and key enterprises concerning state security, we shall gradually loosen the restrictions on the foreign investors who control shares of other enterprises or in other areas. We shall propel investment cooperation between private enterprises and foreign investors, and promote and enhance the overall level and international competitiveness of Chinese private economy.

Transnational companies shall be continuously encouraged to invest in China to set up various operation centers and production bases such as regional headquarters, centers for research and development, purchase centers, training centers and so on; they shall be encouraged to intensify their strategic cooperation with China' local enterprises, be more localized and better integrated with the Chinese economy; they are encouraged to transfer and proliferate more technologies to local enterprises of China, and their controlling or monopolizing over key industries and areas of China shall be prevented.

We shall strive to strengthen the absorption of foreign capital by utilizing securities investments and investment funds, etc., continue supporting the listing of domestic enterprises in overseas stock exchanges. We shall improve the mechanism for enterprise operation under international rules, and extend the scale of foreign capital utilization through share rationing or capital increasing, etc. according to requirements for enterprise development. We shall support qualified large domestic enterprises to grasp good opportunities in the international capital market to issue securities in Hong Kong and other overseas stock markets and bond markets for raising funds. We shall continue strengthening and regulating the administration of domestic enterprises in terms of issuing stocks or listing outside the territory of China and using funds, etc. so as to set up the Chinese enterprises?good image in the international capital market.

We shall optimize the structure of origin of foreign capital, actively extend the scale of investments from developed economies with advanced technologies and management experiences such as the Europe Union, North America and Japan, and try to improve the proportion of investments from such developed economies.

We shall lay emphasis on absorbing capital from Taiwan, and continue applying the policies of 襣iving priorities under equal conditions and properly loosening?to Taiwan investors that invest on the mainland. We shall actively propel the implementation of the Closer Economic Partnership Arrangement of mainland/Hong Kong and mainland/Macao, encourage investors from Hong Kong and Macao to increase their investments on the mainland, and further intensify and deepen the economic connections between the mainland and Hong Kong and Macao. Overseas Chinese investors shall be continuously encouraged to invest in the mainland.

(7) Improving the quality and returns of foreign loan utilization

Foreign preferential loans shall be borrowed actively, reasonably and efficiently. We shall keep foreign preferential loans in a certain scale, and at the same time, considerate both the social returns and economic returns of foreign loan utilization; we shall attach importance to the introduction of advanced international technologies, management experiences and knowledge philosophy, exert the demonstrating and guiding functions of the loan projects and improve the quality and returns of the loans.

The distribution of foreign preferential loans shall be optimized. More prominence shall be given to resource conservation, environmental protection, ecological construction, new countryside construction, harmonious development between urban and rural areas and harmonious regional development. We shall lay emphasis on supporting traffic infrastructure construction, urban infrastructure construction, environmental protection, resource protection and ecological construction. We shall, on the premise of reducing the cost of loans, appropriately offer more support in the social development areas such as education, public health construction, rural and urban drinking water safety, community services, etc. The central and western regions shall be given favorable policies and the investment environment shall be improved. The loans used in the central and western regions and in the northeastern regions shall account for more than 80 percent of the total foreign preferential loans.

There shall be innovations and breakthroughs in the methods of foreign preferential loan utilization. On the premise of sticking to stressing project loans, we shall further probe into effective channels of combining foreign preferential loans with related domestic funds, and research the approach of combining utilization of central budgetary funds and treasury bond funds with utilization of foreign preferential loans.

The scale of international commercial loans shall be extended properly. We shall, fully taking into account the situation of the domestic supply of renminbi and foreign exchange funds, the exchange rate change tendency and the comprehensive cost and risks of financing in international capital market, offer support to qualified domestic enterprises and financial institutions to finance and speed up development through raising funds in international capital market, issuing foreign currency bonds within the territory of China and financial lease, etc. International commercial loans shall, according to the requirement of domestic industrial policies and structural adjustment and optimization, be mainly used to support development of the industries such as finance, civil aviation, petrochemical, chemical industry, electronic information, advanced manufacturing industry, etc; the loans shall be used to introduce advanced technologies and equipment. We shall probe into utilizing foreign funds to improve the construction of domestic credit system, enhance the guaranty capacity of guaranty companies and improve the financing environment for private enterprises. As for the international development institutions such as International Finance Corporation and Asian Development Bank issuing renminbi bonds within the territory of China, based on the experiments made during the period of the 10th Five-Year Plan, experiences shall be summarized and development shall be made steadily.

(8) Intensifying the macro-monitoring and overall administration of foreign debts

We shall, with regard to the adjustment of foreign debt administration indices, the emergence of renminbi foreign debts and the gradual establishment of classified management bylaws modern enterprise system for policy banks and commercial banks, research to work out related policies in order to effectively control the total scale of the state' foreign debts and control the main indices of China' foreign debts such as the debt service ratio, foreign debt ratio to be within the internationally accepted safe line. We shall maintain a reasonable term structure and currency structure of foreign debts, and reasonably control the short-term foreign debt scale. We shall improve the monitoring and pre-warning system of foreign debts, earnestly intensify the overall administration of foreign debts, intensify the analysis of exchange rate risks and other foreign debt risks and enhance the capacity of preventing foreign debt risks.

IV. China' Policy Measures on Foreign Capital Utilization During the 11th Five-Year Plan

(1) Constructing a fairer and sounder environment for foreign investments

We shall, according to the requirement for the development of socialist market economy of China and the opening up to the outside world, research to work out laws and policies on promoting foreign investments, amend and promulgate a uniform Enterprise Income Tax Law applicable to both domestic and foreign enterprises, amend and improve the legal systems on strengthening foreign exchange administration, and further improve foreign-related legal system which satisfies the need in socialist market economy.

We shall reduce matters subject to administrative examination and approval of the government, regulate and simplify procedures for handling matters conscientiously and lawfully, and create a fair and foreseeable policy environment for enterprise development. We shall actively propel the building up of EDI-based customs clearance and endeavor to improve the clearance efficiency. We shall intensify the legislation and law enforcement on intellectual property rights (IPR) protection, severely combat infringement upon IPR and earnestly guarantee lawful rights and interests of Chinese and foreign IPR owners. We shall strengthen construction of basic social credit system, improve the bylaws on punishment of discredit and set up an honest and credible society.

We shall speed up the construction of an overall foreign investment statistical system including foreign investments (containing foreign direct investment and other investments of foreign investors) and foreign loans, completely monitor and accurately reflect the trends of foreign investments and publicize the statistical data on foreign investments to the public in a timely and complete manner so as to lay foundation for better decision-making. We shall continue to pay attention to the impacts of the reform of renminbi exchange rate system to the foreign capital utilization and put forward corresponding measures in a timely manner. We shall further improve the management on capital and financial projects and steadily propel the convertibility progress of renminbi capital accounts. We shall pay close attention to the trends of international capital flows and the policy changes on foreign capital utilization in key countries, promulgate responding policies in a timely manner and maintain the attraction of China to high-quality and high-level foreign investments.

(2) Intensifying policy guidance to the industrial and regional distribution of foreign investments

We shall, according to the development and changes of the economic situation, dynamically adjust the Catalogue for the Guidance of Foreign Investment Industries, further widen the opening up to the outside world, propel the optimization and upgrading of the industrial structure, conserve resources, protect the environment and prevent blind investments and excessive production capacities in some industries. Related provisions concerning regulation of the development of processing trade shall be worked out, the mechanism for processing trade investment shall be improved and the transformation and upgrading of the processing trade shall be promoted. The Catalogue of Imported Commodities Not Exempted From Duties for Foreign-Invested Projects shall be amended and the gap of duty exemption treatment between domestic and foreign-invested enterprises on equipment import shall be further reduced so as to finally adopt uniform taxation policies on imported equipment.

We shall strictly abide by China' commitments to the WTO, work out and promulgate related provisions concerning promotion of the foreign capital utilization in the service sector, and enlarge the areas for foreign capital utilization in the service sector. We shall research policies to gradually loosen the restrictions on foreign investments in the service sector in terms of regions, stock rights, business scope and so on. We shall actively and steadily propel the opening of monopolizing industries and areas to both domestic and foreign investments in a uniform and orderly way. We shall work out the administrative measures for further regulating the real estate development and investment within the territory of China by overseas institutions, preventing short-term international capital from greatly influencing the economy and finance of China via the real estate industry.

The Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions shall be amended and improved, and the contribution of foreign investments in the central and western regions shall be effectively guided. Related policies and detailed implementation rules shall be worked out on speeding up the opening up of the old industrial bases in the northeastern regions as well as the central and western regions.

We shall further regulate the purchase of domestic stocks and bonds by qualified foreign institutional investors, regulate the strategic investments of overseas institutions to the listed companies in China, improve related administrative measures, and, when speeding up the opening of the capital market to both China and the outside world, guide an orderly flow of securities investment funds under control.

(3) Intensifying the implementation of resource conservation and environmental protection

The access standards for foreign-invested projects shall be worked out in terms of energy consumption, water consumption, land occupation, etc., and bylaws on compulsory elimination of outdated process, technologies and equipment of high energy consumption and high water consumption shall apply to various enterprises including foreign-invested enterprises. Environmental protection supervision shall be strengthened over various types of enterprises including foreign-invested ones, the law enforcement efforts shall be intensified, and the bylaws on clean production examination, environmental marks and environmental certification shall be adopted. We shall research to work out comprehensive encouragement policies on offering support to foreign investments in the environmental protection industries so as to speed up the progress of market-based pollution treatment. We shall research to work out standard access policies on foreign investments in exploration and exploitation of mineral resources and reinforce the access conditions for foreign investments in exploration and exploitation of mineral resources. We shall work out and improve related policies encouraging foreign investors to invest in projects of water conservation, energy conservation, material conservation, strengthening comprehensive utilization of resources and transferring advanced technologies.

(4) Guiding various forms of technical cooperation and joint innovation between domestic and foreign investments

We shall work out and promulgate comprehensive encouragement policies on leading foreign investors, especially large transnational companies, to transfer their high-end processing and manufacturing techniques as well as research and development institutions to China so as to encourage transnational companies to set up bases of production, manufacturing, auxiliary facilities, service and training in China. We shall also work out auxiliary policies on encouraging foreign-invested enterprises to carry out research and development cooperation with domestic enterprises so as to better exert the technology spillover effect of foreign-invested enterprises.

We shall improve policies on tax exemption of equipment imported for foreign-invested projects and encourage foreign-invested projects to purchase more domestic advanced equipment and technologies so as to create a better market environment for the complete sets of domestic equipment and advanced applicable technologies and promote the development of the equipment manufacturing industry of China. We shall, when strengthening IPR protection, make full use of international experiences for reference, work out rules and policies concerning prevention of transnational companies from abusing intellectual properties to restrict independent innovations of China, and enhance our capabilities of actively taking part in working out intellectual property rules.

We shall improve the administrative provisions on encouraging and regulating foreign investors to conduct venture capital investment in China, speed up the promulgation of related auxiliary policies, learn from international successful experiences in venture capital investment and improve the mechanism for foreign investors?entry and withdrawal of venture capital. We shall set up and improve policies and bylaws on encouraging people with overseas education background and overseas Chinese professionals to come back to China to set up hi-tech enterprises and work out related auxiliary policies in respect of taxation, entry and exit, work permit, etc. on attracting overseas high-level talents to invest and work in China.

(5) Further strengthening the administration on borrowing foreign loans

We shall continue improving the administration on foreign preferential loans, regulating the procedures for examination, approval and use of loans, improving the loan re-lending mechanisms and raising the work efficiency and fund use efficiency. We shall, in accordance with the guidelines of harmonious social and economic development, develop new loan areas and new loan methods so as to meet the needs in the continuous economic and social development. We shall strengthen coordination and cooperation with multi-lateral and bilateral foreign loan-granting institutions and advocate active interaction based on the constant absorption of their experiences and technologies.

We shall practice the specific measures for promotion of foreign preferential loan utilization in the central and western regions as well as in the northeastern regions, offer aid in respect of loan proportion, auxiliary funds and auxiliary policies, and give favorable policies in terms of lending plans. The active functions of foreign loans in sub-regional economic cooperation shall be fully exerted so as to propel the economic growth and social construction in border areas and create conditions for strengthening economic cooperation with the neighboring countries and regions.

The related provisions for international development institutions to issue bonds and make equity and credit investments within the territory of China with the funds collected by issuing bonds shall be amended and improved, the administrative measures for Chinese enterprise to issue foreign currency bonds within the territory of China shall be worked out and improved, and the opening and development of domestic bond market shall be regulated and supported. The administrative measures for regulating participation of foreign investors in disposal of non-performing assets shall be further improved so as to increase the efficiency of non-performing asset disposal and promote the healthy and orderly development of non-performing asset disposal market of China.

(6) Improving the level of monitoring and management of foreign debt risks

We shall further improve the pre-warning system of foreign debt risks and enrich and improve the indices for the foreign debt monitor. We shall effectively control a reasonable foreign debt structure and the use orientation, intensify the administration and monitoring on the foreign debts of foreign-invested enterprises, the foreign debts of the overseas institutions set up by Chinese enterprises and China' contingent foreign debts and intensify the control efforts on short-term foreign debts so as to combine the administration of foreign debt with that of foreign exchange and guarantee the safety of balance of international payments.

We shall strengthen the macro-guidance on foreign debt risk management of domestic enterprises, regulate the use of various forms of derivative financial instruments, strengthen the administration on the contingent foreign debts arising out of derivative product transactions and promote healthy development of the domestic market of derivative financial products.

We shall further reform the management mode of foreign debt and conduct classified administration to different financing entities. We shall propel the national treatment on the administration of foreign debt of both domestic and foreign-invested enterprises and effectively monitor and control foreign debt risks of overseas enterprises. We shall research to put forward new modes of total amount control and overall administration of international commercial loans.

(7) Maintaining state economic security and public interests

We shall speed up the promulgation of the Anti-Monopoly Law, strengthen the efforts in anti-monopoly work and maintain a market order of fair competition. We shall further detail the policies for sensitive industries concerning national economy, people' livelihood or state security and improve the foreign-invested industry access system; we shall strengthen examining and supervising the foreign-invested merger and acquisition of key enterprises in the sensitive industries concerning state security and guarantee the controlling capability and development guidance over the strategic industries and key enterprises concerning state security, national economy or people' livelihood. We shall lay emphasis on the impacts of wholly-owned foreign enterprises on the economic security of China, particularly the industrial security, and set up a reasonable evaluation and pre-warning system. We shall strengthen taxation regulation and prevent foreign-invested enterprises from transferring profits through transfer pricing, associated transactions and so on.

We shall set up a reasonable mechanism for the evaluation of enterprise asset which meets the requirements for international practices and prevent the damage of domestic assets and interests in the process of foreign-invested merger or acquisition; we shall, in the process of capital increase to a joint venture enterprise, maintain the reasonable interests of the Chinese party under law and guarantee the lawful rights and interests of employees in the merged or acquired enterprises; we shall firmly stop investment attraction acts which damage China' interests such as low-price land assignment, and shall continue intensifying the administrative enforcement supervision system over foreign-invested enterprises.

We shall take effective measures to strictly regulate the policies on foreign capital utilization of all localities and all departments so as to keep the consistency with the state laws and regulations and solemnity of local and departmental regulations or policies. Each locality shall absorb foreign capital by mainly depending on its own advantages and good environment for investment and shall not unlawfully reduce or exempt taxes or promulgate other preferences against the state policies or regulations. We shall continue reforming and improving the methods of attracting investments, fully exert the enterprises?functions as the leading force in the market, more frequently adopt the new investment attracting methods such as public bidding invitation, attracting investments via network, etc. so as to avoid the blindness and excessive administrative intervention in investment attraction and to improve the actual effects of investment attraction.

(8) Actively taking part in formulating and coordinating the international economic rules

We shall earnestly face the new round of WTO negotiations, propel the bilateral and regional cooperation of economic and trade actively and steadily, speed up the development of multi-lateral and bilateral investment cooperation relations and establish a mechanism for promoting the investment cooperation with key countries so as to create an external environment which may be beneficial to China in the absorption of foreign investments. n

(Not the official translation. Source: www.fdi.gov.cn)