I. A Brief Account of Foreign Direct Investment in China
　　
　　1. Foreign direct investment in China grew rapidly.
　　In 2001, foreign direct investment (FDI) in China grew markedly. The contracted foreign investment in China came to US$69.191 billion, and the foreign investment actually realized, to US$46.846 billion, 10.43% and 14.9 % over the previous year, respectively.
　　From January to April in 2002, the number of new foreign-funded enterprises approved and the foreign investment realized in China continued to grow rapidly, up of 20% and 29.1% year-on-year, respectively. The contracted foreign investment, however, grew a bit slower, which was 5.1% over the figure for the same period of 2000. If all goes well, the growth of foreign investment realized in China will exceed 10% for this year, reaching US$51 billion.
　　
　　2. Solely foreign-funded enterprises provide more and more FDI in China.
　　Solely foreign-funded enterprises accounted for 46.94% of the foreign investment realized in China in 2000, up from 38.68% in 1999. The proportion continued to grow, to 50.26% in 2001. Such enterprises furnished 57.7% of the foreign investment realized in China in the first four months of 2002
　　
　　3. Rapid increase in export by foreign-funded enterprises.
　　In 2001, China‘s export faced unfavorable external conditions resulting from a slowdown of the world economy. Despite that, the country was able to achieve a 6.8% increase in its export. Foreign-funded enterprises contributed much to the growth, by registering an 11.5% increase in their own export. To be more precise, enterprises under sole foreign proprietorship furnished 50.1% of China‘s total export, and 81.2% of the total added value generated by the country through export. In the first four months of 2002, their export grew by 14.73% year-on-year, accounting for 51.76% of the country‘s total for the same period.
　　
　　II. New Characteristics of Foreign Investment in China
　　
　　China is experiencing a change from being a world assembly shop to being a world factory.
　　(1) China is beginning to build up a high-tech, high added value industrial edge.
　　As transnational corporations are increasing their investment in China while upgrading it, the country, while retaining its advantage in traditional or labor-intensive industries, has by and large built up a competitive edge in research and development (R&D) of high added value products.
　　In the past, transnational corporations were reluctant to transfer their most advanced products and technologies to China. In recent years, however, marked changes have taken place in this state of affairs. For example, many Japanese companies are transferring their most advanced manufacturing technologies and products to their enterprises in China. Some companies have begun investing in China‘s IT and software sectors. Another example is the Kodak, which has moved its Easyshare digital camera production line to Shanghai.
　　(2) China, as a research and development base, has become increasingly important.
　　China is developing into a global R&D base for transnational corporation. By the end of 2001, transnational giants had established more than 110 R&D centers in China. Of those that have set up such centers in China, most have been operating in the country for five years or more such as Microsoft, Intel, IBM, Nokia, Motorola, Fujitsu, SUN, GE, Mitsubishi, etc. They have invariably invested mega-dollars in China and have long-term plans for development in the country. Most of the R&D centers set up by transnational corporations are under their exclusive ownership, and focus on information and communication, bio-pharmacy, fine-chemicals and manufacture of transport equipment. In the first four months of this year, at least 11 more transnational corporations set up R&D centers in China.
　　(3) Large investment projects increasing in numbers.
　　Numerous mega-dollar projects have been signed or started construction over the past two years. One is a 900,000T/Y ethylene plant, which is a US$2.7 billion joint venture between China Petrochemical, Shanghai Petrochemical and British BP. This is one of the largest in the world. It is scheduled for completion in 2005, with an annual output accounting for one quarter of China‘s current annual production. Construction began on November 2, 2001, on a package of seven projects using US$3.1 billion from Bayer of Germany. Shell is reportedly to invest US$4 billion in a petrochemical works in Guangdong Province to produce 800,000 tons of ethylene and 2.3 million tons of other products a year. BP, on its part, is investing US$5 billion in China over a five-year period.
　　2. Service sector: new focus of investment
　　Thanks to China‘s entry into the World Trade Organization, China has opened its service sector wider to foreign investment. In 2001 and the first four months in 2002, China‘s service sector has made breakthrough in absorbing foreign investment.
　　(1) Finance Service
　　The Bank of Shanghai announced towards the end of 2001 that foreign banks were already holding 18% of its stake, thanks to transfer of its shares to the Hong Kong-based Hong Kong and Shanghai Banking Corporation and Hong Kong and Shanghai Commercial Bank. Many foreign banks are now applying for permission to expand the scope of their business in China.
　　(2) Media Service
　　In October 2001, CETV under Times-Warner and the Hong Kong Phoenix TV won approval of the Chinese Government operate entertainment programs covering Guangzhou and other parts of the Pearl River Delta. The STAR Group of the United Sates won approval on December 19 to run an entertainment program covering Guangdong Province round the clock. In early 2002, a joint venture bookstore between the Mainland and Taiwan was opened in Fuzhou, capital of Fujian Province. Besides, the Chinese Government has approved the establishment of the first Sino-foreign joint venture film company and of the Shanghai-Sony Music Co., a joint venture producer of audiovisual products.
　　(3). Tourism
　　China is opening its tourism sector to foreign investors. In January 2002, Shanghai, China‘s largest city, announced that it will open its travel service to foreign investors, allowing investors from the U.S., Europe and Japan to open their travel agencies in Shanghai. Meanwhile, Shanghai will establish one or two joint venture travel agencies in 2002.
　　(4). Railway Transport
　　In January 2002, a Sino-foreign joint venture railway transport company was established in Gansu Province. This is the first of this kind ever set up in China. Meanwhile, a company under the Harbin Railway Bureau is negotiating with the American GE, planning on a joint venture to engage in railway cargo transport.
　　(5) Communication Service
　　In 2001, a Sino-foreign joint venture in telecommunication was established in Shanghai. This is the first of this kind ever established in China, involving AT&T of the United States.
　　(6) Automobile Financing
　　The People‘s Bank of China will published a set of rules and regulations in 2002, allowing foreign-funded non-banking financial organizations to extend mortgage loans to automobile buyers. Quite a few automobile giants in the world have said that they will enter China‘s automobile credit market when the new policy becomes official.
　　(7) Goods Distribution
　　A Sino-foreign joint venture of wholesales company, the first in China, has been set up in Shanghai. Foreign companies are now allowed to engage in wholesales, retail-sales and chain store business in the country.
　　(8) Securities trading
　　On March 7, 2002, an agreement was signed between the Yangtze Securities Co. Ltd. of China and Banque de Paris of France on setting up a joint venture stock company. This agreement, along with a document on the framework of cooperation between the two sides, was the first of its kind to have been signed after China‘s WTO entry.
　　(9) Public Utility
　　In 2001, Shenzhen approved a Guangdong-Hong Kong joint venture for developing the local water supply system. Shanghai has approved a Sino-foreign joint venture waterworks.
　　(10) A-Share Market Opened to Foreign Investors
　　In October 2001, China allowed foreign-funded enterprises that meet the certain requirements to issue A- and B-shares on China‘s securities markets. Also allowed is transfer of state-owned stocks and corporate stocks to listed foreign-funded companies in China.
　　3. Investment by Foreign Companies through Acquisition
　　The current Chinese policy encourages foreign companies to invest in China through acquisition of state-owned enterprises. This seen as a breakthrough in China‘s opening undertaking, as a measure of major importance to revitalize those state-owned white elephants through restructuring.
　　Restructuring of large-sized state-owned enterprises is aimed in part to diversify their property rights. Both enterprises and administrative departments have realized that it is of great importance to reform large-sized state-owned enterprises by way of attracting foreign investment through acquisition. Meanwhile, many transnational corporations have a strong desire to invest in China by way of acquisition. In several years from now, investment through acquisition will become a major characteristic of China‘s absorbing foreign capital. However, the conditions, in terms of the relevant Chinese legislation, are yet to be fully prepared for merging and acquisition of Chinese enterprises by foreign investors. In 2002, foreign investment in China through acquisition will increase, but the new policy is still being tried out on a trial basis for both China and foreign investors.
　　
　　The author is deputy director and research fellow of the Finance and Trade Institute, the Chinese Academy of Social Sciences.