Mon, Sep 18, 2006 page11

• China taking measures to limit foreign investments

  • AP
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  The going for foreign businesses in China, never easy, has gotten tougher as the government rethinks the "open door" policies that have made the country a magnet for foreign investment.

  New rules forcing foreign news agencies to distribute news, photos and other services through the government's Xinhua new agency are the most recent in a series of obstacles that have been placed in the way of foreign businesses eager to invest in China.

  In recent months, Beijing has also slapped limits on real estate investment and tightened controls on mergers and acquisitions -- moves that caught many foreign investors off-guard.

  "In the old days, they wanted foreign capital. Now, there is a conservatism in the sense that some worry they are giving away too much in terms of state assets," says Bob Broadfoot of the Hong Kong-based Political and Economic Risk Consultancy.

  Beijing has cited various motivations for the measures, from the need to ensure competition to the desire to cool off overheated segments of the economy.

  Overall, Chinese leaders insist there has been no reversal in the two-decade-old policy of encouraging foreign investment -- a strategy that has made China the world's favored destination for foreign direct investment for several years running, drawing US$72.4 billion in foreign funds last year.

  "The Chinese government will continue to adhere to the policy of opening ourselves to the outside world," Premier Wen Jiabao (溫家寶) told British and Chinese business leaders during a visit to London last week.

  Other factors are also creating a tougher business climate. The low wages that made China a manufacturing powerhouse are starting to rise, as are land and utility costs, eating into profits.

  But Beijing also is getting choosier. In recent months, the government has delayed closing several major deals.

  The private equity firm Carlyle Group LP has been waiting nearly a year for approval of a US$375 million bid for an 85 percent stake in state-owned Xugong Group Construction Machinery Co (徐州徐工築路機械).

  Citigroup Inc has been waiting for months to close a deal giving it a stake in troubled lender Guangdong Development Bank (廣東發展銀行). Officials refused comment on reports that Citigroup prevailed over rival buyers, winning a sharply reduced 19.9 percent stake.

  In both cases, nationalist sentiment over the sale of assets to foreigners was at work. After the Carlyle deal, the government later announced that big construction equipment makers must consult with Beijing before selling stakes to foreign investors.

  Germany's Schaeffler Group is still waiting for approval of its 1.1 billion yuan (US$138 million) bid for Luoyang Bearing Group (洛陽軸承集團).

  Meanwhile, Beijing has announced a series of new regulations tightening restrictions on some kinds of foreign investment.

  New merger and acquisition regulations, which took effect Sept. 8, require that the Ministry of Commerce approve all deals involving national or "economic security." Local companies must keep control of Chinese trademarks and brand names.

  Rules announced in July also bar foreigners from buying residential property that isn't for their own use and require government approval to transfer properties.

  Proposed rules would also limit growth of foreign retail chains such as Wal-Mart Stores Inc, which are becoming a huge presence in cities.
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