chapter  4
22 Pages

The quandary for Chinese regulators: controlling the flow of investment into and out of China

ByVIVIENNE BATH

This chapter examines the relationship between Chinese regulation of inbound and outbound investment and China’s approach at the inter na tional level, through bi lat eral and multi lateral treat ies, to com mit ments on investment pol icy and practice. China, while encouraging inbound investment, maintains tight control over regulation of investment in China. At the same time, Chinese pol icy is also to encourage Chinese com panies, both private and state-owned, to invest overseas. The Chinese gov ern ment’s approach to the issues of inbound and outbound investment highlights the difficulty of striking a balance between the right of states to control the flow of investment into their own territory with the expectation that their investors will be able to make investments in other states and enjoy appropriate rights and protections in connection with those investments. China is a major recipient of foreign direct investment, reaching a new record of US$105.74 billion in 2010. Major investors in China in 2009 were Hong Kong, Tai wan, Japan, Singapore, the United States, South Korea, the United Kingdom, Ger many, Macau and Canada (Fletcher 2011; US-China Business Council 2011). In addition, China is the source of substantial amounts of outbound investment, with Chinese private com panies, stateowned enterprises, gov ern ment agencies and the Chinese sover eign wealth fund, the China Investment Corporation, all actively engaging in investment with the encouragement and sup port of the Chinese gov ern ment (OECD 2008: 65-142). According to Chinese stat ist ics, total FDI in 2009 was US$56.5 billion, of which non-financial foreign direct investment was US$47.8 billion (Davies, K. 2010; Xinhuanet 2010b). Much of this investment has been directed to the Asia-Pacific region, with Australia (total stocks of US$5.9 billion at the end of 2009) and Singapore (US$4.9 billion) the largest recipients after Hong Kong (US$164.5 billion). It should be noted that the immense amount of funds which flow in and out of Hong Kong and other tax havens such as the Cayman Islands and the British Virgin Islands make it difficult ac cur ately to access the sources and locations of Chinese outbound FDI (Gugler and Boie 2008: 3-4; Davies, K. 2010).