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Building an attractive investment environment in Western China:

The Policy Framework for Investment

Ken Davies, Senior EconomistOECD Investment Division

Briefing on the Investment Advantages of Central & Northeast China

10th China International Fair for Investment and TradeXiamen, China

9 September 2006

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OECD work with China on regional investment attraction policies

Investment policy reviews of China were published in 2003 and 2006.

The 2006 review included a pilot study on North East China.

OECD held a joint conference with MOFCOM on the role of investment in China’s regional development in 2001 in Xi’an.

OECD participated in the 1st Investment Promotion Conference in Beijing in 2003 and the 3rd Investment Promotion Conference in Chengdu in 2006.

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The “OECD approach”

OECD Member countries share policy experience with each other, for example through peer reviews.

They also share such experience on an equal basis with non-member economies in the OECD’s outreach work.

The OECD does not propose a single “one size fits all” solution to problems, as policies need to be adapted to national and local conditions.

The OECD seeks to involve non-members, especially key players in the world economy such as the BRICS countries, in its policy discussions.

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What does this mean for Western China?

Each locality has its own advantages in terms of such things as location, natural resource endowment and historical development.

Each locality also faces specific development challenges.

We look forward to hearing about these specific features from the following speakers, who are the experts on this subject.

Perhaps we can help by sharing the experience of both member and non-member countries in answering the question:

How can regions make best use of their advantages and develop policies to meet the challenges of investment attraction?

The OECD and its partners have just published a Policy Framework for Investment (PFI) that can help them.

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What is the aim of the PFI?

The objective of the Policy Framework for Investment is to mobilise private investment that supports economic growth and sustainable development.

It aims to contribute to prosperity of countries and their citizens and support the fight against poverty.

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Who developed the PFI?

The Policy Framework for Investment was developed by a task force of government officials from about 60 OECD and non-OECD economies, with the partnership of the World Bank, the United Nations and other international institutions and informed by regional consultations in Africa, Asia, Latin America and South East Europe.

Business, labour and other civil society organisations also contributed their points of view in developing the PFI.

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How can the PFI be used?

The Policy Framework for Investment is not a book of ready-made prescriptions telling governments what to do.

Rather, it is a flexible tool with which to frame and evaluate the important policy challenges governments face in pursuing development.

Its core purpose is to encourage policy makers to ask appropriate questions about their economy, their institutions and their policy settings in order to identify priorities, develop an effective set of policies and evaluate progress.

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What policy areas are in the PFI?

Investment policy Investment promotion and facilitation Trade policy Competition policy Tax policy Corporate governance Policies for promoting responsible business conduct Human resource development Infrastructure and financial sector development Public governance

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Investment policy

Main principles: transparency, property protection and non-discrimination.

The aim is to encourage investment, from both domestic and foreign investors, and by both large corporations and by small and medium-sized enterprises (SMEs).

Mainly applies to national policy, but local implementation and enforcement is important.

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Investment promotion and facilitation Does the government have a strategy for

developing a sound, broad-based business environment, and within this strategy, what role is given to investment promotion and facilitation measures?– Investment promotion measures can be successful

within the context of, and not a substitute for, broader policies for improving the investment environment.

– They can be useful for more attracting new investors to smaller, more remote markets.

– Effective investment promotion can highlight profitable investment opportunities by identifying local partners and raising the positive image of the economy.

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Investment promotion and facilitation Has the government established an Investment

Promotion Agency (IPA)? To what extent has the structure, mission and legal status of the IPA been informed by and benchmarked against international good practices?

Are IPAs adequately funded and is their performance in terms of attracting investment regularly reviewed? What indicators have been established for monitoring their performance?– The establishment in July 2006 of the China Council for

the Promotion of Investment and China’s central role in WAIPA indicate that both national and the many local IPAs are flourishing, and enjoy strong support from the central, provincial and municipal governments, in China.

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Investment promotion and facilitation

How has the government sought to streamline administrative procedures to quicken and to reduce the cost of establishing a new investment?– “One-stop shops” (as have already been established in

several localities in China) can be helpful. In its capacity as a facilitator for investors, does

the IPA take full advantage of information on the problems encountered from established investors?

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Investment promotion and facilitation

To what extent does the IPA promote and maintain dialogue mechanisms with investors?

Does the government consult with the IPA on matters having an impact on investment?– Investment promotion agencies can play an important

role facilitating effective communication between investors and government.

– The IPA is often the main source of feedback to government policy-makers from foreign investors.

– The IPA can be an effective communications channel for investors on government activities having an impact on the investment environment.

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Investment promotion and facilitation What mechanisms has the government established for the

evaluation of the costs and benefits of investment incentives, their appropriate duration, their transparency, and their impact on the economic interests of other regions?

– In the absence of a solid investment environment, competition for FDI may lead to no overall increase in investment and divert public resources away from more productive uses.

– In some circumstances, incentives may complement an already attractive enabling environment for investment or serve as a partial rectification for market imperfections that can not be addressed by direct policy reform.

– Authorities engaging in incentive-based strategies to attract investment must periodically evaluate their relevance, appropriateness and economic benefits against their budgetary and other costs, including long-term impacts on resource allocation.

– Many governments, including all OECD member countries, consider it inappropriate to encourage investment by lowering health, safety or environmental standards or relaxing core labour standards.

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Investment promotion and facilitation

What steps has the government taken to promote investment linkages between businesses, especially between foreign affiliates and local enterprises?

What measures has the government put in place to address the specific investment obstacles faced by small and medium-sized enterprises (SMEs)?

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Investment promotion and facilitation

Has the government made use of international and regional initiatives aimed at building investment promotion expertise, such as those offered by the World Bank and other intergovernmental organisations? Has the IPA joined regional and international networks?

To what extent has the government taken advantage of information exchange networks for promoting investment?

The answer to both these questions is positive for both national and local authorities in China.

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Implementation of national policies

Coherent policy implementation across all regions of China is important for investors.

Local protectionism discourages, not encourages, investment.

Human resource development:– Education– Healthcare– Core labour standards

Infrastructure and financial sector development– Policy transparency

Public governance

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Thank you谢谢大家

The full text of the Policy Framework for Investment is on this web site: http://www.oecd.org/daf/investment

Email: kenneth.davies@oecd.org