ABSTRACT
One of the key realities and strengths of the Chinese economy is its massive annual capital accumulation and investment. The fundamental flaw in the Chinese system, from the standpoint efficient use of investment resources, has been the combination of two things. They are: control over investment funds and their allocations in the hands of government officials and bureaucrat-managers at the Central, provincial, and local levels; and the prevailing system of state ownership with the predominant social and political, as well as economic, roles of state-owned firms. Foreign currency borrowing by Chinese and Foreign Invested Enterprise (FIEs) is not allocated in the same way as Renminbi funds. A separate control regime exists with a fundamentally different purpose: to control China's foreign debt. In this regime People's Bank of China and the State Administration of Foreign Exchange are the key regulators. Equity in FIEs has normally come directly from foreign strategic investors setting up manufacturing facilities and from Chinese partners.
