Chinese Media Reveal That Almost Half of Foreign Investment Withdrawn

On the 27th of December in 2004, the Voice of Germany issued a report entitled, "China Fervor Has Reached the Stage of Ignoring Profit." It says German Banking analysts have found that many companies are starting to doubt that the risk/return ratios justify sustaining investments in China. When asked, most German companies refused to disclose the amounts of the profits generated by their business ventures in China. Companies based in other countries also avoid this question.

In 2003, according to research by the independent Chinese Economic Quarterly magazine,

U.S. companies in China earned a total of $4.4 billion. By comparison, Australia, with a population of only 19 million people, earned $7.1 billion, Taiwan and South Korea together earned $8.9 billion and Mexico earned $14.3 billion.

On the 18th of December in 2004, in the article, "Local Governments Hope the Unified Income Tax Policy for Foreign Owned Companies Will Be Shelved," the Chinese Financial Times (Cai-Jing-Shi-Bao) newspaper revealed for the first time that about half of China's foreign investment capital had been pulled out of the country. This happened after the U.S. House of Representatives Taxation Committee passed a bill called the Homeland Investment Act. The Act lowered the tax rate of overseas U.S. companies from 30 percent to 5.25 percent for a period of one year, with the condition that the amounts saved be reinvested within the United States. In response to this action, Beijing stopped the execution of their new bill, which would have increased the tax rate of foreign investors to the same as that of Chinese companies.

In an interview with the Chinese Financial Times, officials from the Chinese Ministry of Commerce rejected the view that China has a surplus of foreign capital. They said that the amount of foreign capital invested is demonstrably not excessive, since China has attracted a total of $559.023 billion from non-Chinese sources. Half of those funds have since been withdrawn. At present, there are 504,568 registered foreign-funded companies in China, but less than two-thirds of them are actually operating. One week prior to this Financial Times interview, Huang Hai-An, assistant to the minister of China's Ministry of Commerce, said that the amount of direct foreign capital invested in China has been overestimated. Because statistics on the movement of foreign capital are not kept, the figure for "Cumulative Foreign Capital Invested" is used. The numbers indicate neither the profits of the companies reported on, nor whether any of their funds have been taken out of the country. At the end of 2003, the stocks of China's foreign ventures were valued at about $250 billion, or about half of the cumulative amount invested, which was $501.4 billion for that period.

The ratio of foreign funds to China's fixed assets also showed the same problem. According to statistics from the Ministry of Commerce, in 2003, China-based companies actually used $53.5 billion in foreign funds, or 8.3 percent of that year's total capital investment. The corresponding figure for 1994 was 17.08 percent.

On the 18th of December, 2004, Xinhua Net reported that "China's auto industry, because of increases in production without corresponding increases in profit, is on the verge of losing money." In a November 2004 interview with the Worker's Daily, Jiang Yuan, an expert from the Public Transportation Branch of the State Statistical Bureau, said that profits for the entire auto industry have been decreasing, and it is now on the verge of net losses.

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