Welcoming policy

Chinese Premier Wen Jiabao reiterated that China welcomes investment from companies that meet its industry policies. "Those that have entered China all enjoy national standards of treatment, whether they are a foreign-funded, a joint venture or a joint stock company," he said.

Wen categorically refuted the allegation that the business environment is worsening. "Foreign investment does not pour into a country where the investment environment is deteriorating," he pointed out.

The rise of FDI has been one of the major successes for China since the country's reform and opening-up policy began in the late 1970s. China attracted about $90 billion in FDI last year alone, despite of the global economic downturn. Data from the Ministry of Commerce (MOC) showed the amount of FDI that flowed into China rose to $51.43 billion in the first six months of 2010, up 19.6 percent year on year. Over 12,400 foreign-funded firms got the nod from the Chinese Government to establish their subsidiaries in the first half of 2010, up 18.8 percent from the same period of 2009.

Liu Yajun, Director of the Foreign Administration Department with MOC, said the data underlines China's attractive investment environment, which has boosted investor confidence. Liu refuted the conclusions of the World Bank report, saying, "China has spared no efforts to reduce restrictions and open more sectors to foreign equity ownership."

GE is one of those to seize the opportunity. Responding to recent reports saying that China is hostile to foreign firms, GE China released a statement saying they are satisfied with the investment environment and will expand in China in partnership with state-owned enterprises, with more than $2 billion invested.

An eye on regulation

According to Dirk Moens, foreign companies expressed optimism about the country's prospects for profitability, but are still greatly concerned about the uncertainty surrounding regulations. But analysts believe such worry is mostly unnecessary.

The principal rules governing foreign investment in China, the Catalogue of Industries for Guiding Foreign Investment, have been amended four times so far. "Each time, the government removes some restrictions and improves the rules and regulations facilitating FDI," said Zhang Yansheng, a senior researcher with the National Development and Reform Commission.

According to MOC, since entering the World Trade Organization, China has opened up more than 100 sectors in the service and trade industry, which is far beyond the average level for developing countries: 54 sectors.

"Such structural changes to FDI policy are inevitable, as China improves its investment environment to adapt to the changing world," said Zhang.