Cablegate: Fdi in China: Which Way Will the Pendulum Swing?

VZCZCXRO1100
PP RUEHCN RUEHGH
DE RUEHBJ #0366 0420916
ZNR UUUUU ZZH
P 110916Z FEB 10
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8084
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BEIJING 000366

SENSITIVE
SIPDIS

STATE PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD CH

SUBJECT: FDI in China: Which Way Will the Pendulum Swing?

This cable is Sensitive but Unclassified (SBU) and for official use
only. Not for transmission outside USG channels.

1. (SBU) Summary: Chinese Vice Premier Li Keqiang's January 29
speech at Davos and recent State Council guidelines encouraging
foreign direct investment (FDI) in China indicate continued support
at senior levels of government for economic reform and a more open
investment climate, according to a senior scholar at a Ministry of
Commerce (MOFCOM)-affiliated think tank. However, our contact
cautioned that a "Cold War mindset" among some policymakers might
thwart reform progress and instead strengthen the recent trend
towards state-led growth. Comment: Despite some central decision
makers' recent reiteration of support for FDI, foreign companies
continue to report significant and growing challenges in doing
business in many sectors, and serious concerns remain about whether
China's increasing use of industrial policies to skew the playing
field toward domestic "champions" indicates a fundamental shift away
from its decades-long policies of reform and opening. End Comment
and Summary.

Support for FDI among Senior Officials Still Strong?
--------------------------------------------- -------

2. (SBU) In a January 29 meeting with EconOffs, Director General of
the MOFCOM-affiliated think tank Beijing New Century Academy on
Transnational Corporations Wang Zhile credited FDI with
significantly contributing to China's economic development and
argued that even though China was now less dependent on their
capital, multi-national corporations (MNCs) continued to provide the
management experience and technology that was critical for China's
continued economic growth. He said that his views enjoyed support
among some senior Chinese leaders, including Vice Premier Li Keqiang
and Chongqing Party Secretary Bo Xilai. Wang praised Li Keqiang's
January 29 speech at the World Economic Forum in Davos, in which
Vice Premier Li noted the importance of FDI and called for breaking
up SOE monopolies in China.

3. (SBU) According to Wang, this high-level support for FDI was also
evident in the working guidelines on foreign investment adopted at
the December 30, 2009, State Council Executive Meeting chaired by
Premier Wen Jiabao. The guidelines call for the government to
expand market access sectors; encourage FDI in high-end
manufacturing, high-tech, modern service, new energy, energy-saving
and environmental protection industries; apply industry
revitalization measures equally to qualified FIEs; and encourage
foreign investors to take part in reorganization and restructuring
of domestic companies through mergers and acquisitions. While the
guidelines are consistent with China's long-standing policies of
encouraging foreign investment in these sectors, Wang was heartened
by this high-level reiteration of support for FDI.

China's Shifting Views on MNCs
------------------------------

4. (SBU) Wang pointed out that Chinese policymakers vacillated on
the question of MNCs, at times welcoming their investment in China
and at times opposing what they saw as MNCs' excessive influence
over China's economy. Wang, a well-known advocate of FDI in China,
expressed concern that the pendulum had swung against MNCs in recent
years, as Chinese policymakers with a "Cold War mindset" had adopted
measures to limit foreign companies' access to China's market and to
promote SOE-led growth. Wang pointed to the growing trend towards
promoting and protecting domestic "strategic industries," citing
China's steel industry as one example of state-led consolidation
that would restrict competition and strengthen monopolies. He said
the politicization of the Google case had added to the difficulties
in lobbying senior leaders in favor of foreign investment.

China Needs Tougher Anti-Corruption Law
---------------------------------------

5. (SBU) Wang said that corruption was a serious obstacle to reform
and economic growth, commenting that China's anti-corruption
campaign focused on corrupt officials and essentially ignored
companies involved in bribing officials. He argued that China
should study the U.S. Foreign Corrupt Practices Act (FCPA) and adopt
a similar law to crack down on corrupt business practices.

HUNTSMAN

© Scoop Media