Changes May
Influence Future
Investments in China
Munkhzaya Ochirsukh MA2N0245
Financial Management
Case 8
Foreign Direct Investment

Foreign Direct Investment in China soared
in 2006. Not including banks, insurance,
and securities, FDI amounted to $63.02
billion. China’s economy has surged more
than tenfold since 1980, the first year it
allowed foreign investments and money
began pouring into factories on China’s
east coast.
Foreign Direct Investment

Foreign Direct Investment in China
increased to 958.80 USD Hundred Million in
October of 2014 from 873.60 USD Hundred
Million in September of 2014. Foreign
Direct Investment in China averaged 385.52
USD Hundred Million from 1997 until 2014,
reaching an all time high of 1175.86 USD
Hundred Million in December of 2013 and a
record low of 18.32 USD Hundred Million in
January of 2000.
Foreign Direct Investment

Prime Minister Wen Jiabao wants to steer
investments toward the manufacturing of
higher-value products and toward lessdeveloped regions. Wen is giving tax
breaks and promising speedy approvals
for investments away from areas in the
east, such as Shanghai and the Pearl River
Delta.
Foreign Direct Investment
China allows three types of Foreign
Investments:
- WFOE (wholly foreign-owned enterprise)
in which the firm is entirely funded with
foreign capital
- Joint venture in which the foreign partner
must provide at least 25 percent of initial
capital
- RO the most common and easily established
entity, which cannot perform business
activities that directly result in profits.

Foreign Direct Investment

Like any Foreign Investment, investing in
China is not without risk. One potential
risk facing foreign investors in China is
the likelihood of a future tax increase.
Currently, domestic (Chinese) enterprises
have heavy tax burdens, while foreign
investment enterprises enjoy a lower tax
rate. The difference is about 13 percent
and it is one reason why foreign investors
favor China.
Foreign Direct Investment
 The
Chinese Government has
encouraged foreign investments
through favorable tax treatment.
Can you think of similar
situations in your own country?
Tax Policy

China implements a low-lax policy for
foreign
investment
enterprises
and
implements preferential tax policies in the
industries and regions where investment is
encouraged by the state. At present, taxes for
foreign investment enterprises and foreign
individuals ( including compatriots in Hong
Kong, Macao and Taiwan): business income
tax, Personal income tax, turnover tax
(value-added tax, Consumption tax and
business tax included) ,tariff, land increment
tax, resource tax, urban real estate tax. etc.
FDI in Mongolia


In the last few years the interest of foreign
investors in capital investment in Mongolia
has been rising, especially among investors
from Northeast Asia and North America, and
the volume of capital investment has
increased in the all fields of trade, most of all
in the mining industry.
The government of Mongolia is, of course,
very concerned with the question of foreign
investment and has directed the creation of
both foreign and domestic policy which
supports and stimulates the increase of
foreign investment within Mongolia.
FDI in Mongolia
The Foreign Investment Law of Mongolia was
adopted in 1993. Further amendments were made
in 1998 and 2002. The objective of these changes
was to create good conditions for foreign
investment such as reducing the value-added tax
on imported goods, improving services for
registration and operation of companies with
foreign investment, introducing provisions for
cooperation between Mongolian and foreign
investors, and establishing preferential tax
treatment and stable investment guarantees.
 Between1990 and 2006, 6,165 foreign companies
from 96 countries were registered in Mongolia.

FDI in Mongolia

After amending the Foreign Investment Law of
Mongolia investment in Mongolia has grown by
between five and six percent, compared to the
averages between 1996 and 2000, and investment
for the exploration and mining industries rises
every year. In 2006 foreign entities invested
366$US billion dollars in Mongolia, and total
foreign investment reached 1.8$ US billion dollars
since 1990. Today in Mongolia 73 percent of all
foreign investment companies consist of
companies which have paid-in capital between
US$10,000 and US$50,000. 9 percent of foreign
investment companies have a paid-in capital of
between US$50,000 and US$100,000 and the
remaining 18 percent have paid-in capital of more
than US$100,000.
FDI in Mongolia

The Government of Mongolia (GOM) has consistently
said that it supports foreign direct investment (FDI) in
all sectors. Throughout 2013 and well into 2014, the
President of Mongolia, Ts. Elbegdorj, and other senior
officials have publicly stated in a variety of international
and domestic venues that the GOM will keep key
foreign investment commitments and pass investorfriendly legislation, because they recognize the value of
FDI for Mongolia. On May 8, Parliament passed a
resolution on “measures to spur economic activities”
identifying steps to improve foreign currency flows,
lower risk, and improve the business and investment
environment; and on July 1, passed long-awaited
amendments to the Minerals and Petroleum Law
respectively.
Domestic vs. Foreign:
It’s Where You Are, Not Who You Are