One of China's leading economists, Professor Lin Yifu, recently said of China's position in the world: 4th in GDP, 3rd in Trade, 2nd in Foreign Direct Investment and 1st in Foreign Exchange Holdings. Perhaps the fact that China is second and first in areas that has the word "foreign" in its title led many in China's business arenas to reconsider their protectionist positions.
Now the party state has heard the call, and it appears the ongoing debate on the future of foreign direct investment (FDI) is coming to a temporary close. Back in March, China already "equalized corporate tax rates paid by local and overseas enterprises." That's 30 years of favorable treatment to foreign firms out the window. But to further the process, Beijing issued rules to "prohibit or limit foreign investment in key industries as it seeks to cool its overheated economy and clean up its damaged environment." Now that's a huge step.
This will definitely bring about significant changes, be it corporate policies or strategic capabilities. Will this result in a higher valuation of state owned and domestic companies since they are now on a reasonably level playing field with foreign multinationals? Hopefully it will bring about more investors who are willing to invest directly in China, especially in high tech, advanced materials and equipment manufacturing, so as to improve the economy there rather than investors who are hesitantly hedging their bets on publicly listed multinationals who are getting indrect exposure to China.
What do you think?
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