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335 58 Several Issues Regarding Attracting Foreign Investment1 July 15, 1989 Several issues surrounding foreign investment in Shanghai merit close attention. 1. The Direction of Foreign Investment As Deng Xiaoping has pointed out, incurring some foreign debt to improve infrastructure can also be considered part of reform and opening up. The question now is how to do it, which areas to open up and which to keep closed. Since coming to work in Shanghai, I’ve devolved the authority to review and approve foreign-invested projects, simplified procedures, and formed a “onechop shop”—the Municipal Foreign Investment Commission—to motivate foreigners to invest in Shanghai. Work in this area has achieved results, but some shortcomings have also come to light, especially since we devolved review and approval powers to the districts and counties and foreign-invested projects went around the departments in charge during the review process. Negative phenomena appeared, such as redundant technology imports, increased pollution , takeover of markets [from Chinese companies], and competition with state-owned enterprises (SOEs) for raw materials and energy. We need to properly review our experiences in this matter. When we devolved powers last year, I worried that reviews of projects under US$5 million would get out of control, so I repeatedly called on the departments concerned to step up supervision. They could reject projects they found to be redundant or that increased pollution, but the supervision was poor. I’m asking Ye Longfei2 to take the lead in reviewing whether there have been more pros or cons since the “one-chop shop” was set up. Although there are probably more pros, we’ll have to establish a supervisory mechanism to keep watch over 1. These are the key points made by Zhu Rongji after listening to a work report by leaders of the Minhang Economic and Technical Development Zone in Shanghai. 2. See chapter 7, note 11. Zhu_Shanghai Years_1987-1991_hc_9780815731399_i-xii_1-620.indd 335 12/26/17 12:01 PM 336 Several Issues Regarding Attracting Foreign Investment the cons. Policies must remain stable, and we mustn’t take back review and approval powers that have already been devolved. From now on, we mustn’t blindly develop joint ventures. Joint ventures that are approved must meet at least two conditions: they must bring in advanced technology, and their products must be exportable. We cannot be lax about these two conditions. Generally speaking, the foreign partners in a joint venture usually don’t bring in large amounts of capital. If, after a joint venture is formed, it takes over all the [Chinese partner’s] original customers and the baseline sums it had contracted for, and if its exports use up our original quotas, what good is it? I’m asking Shen Beizhang3 to take the lead on this issue—have the Municipal Foreign Trade and Economic Relations Commission study the matter and quickly come up with several rules; clearly stipulate which types of projects are permissible and which are not, in keeping with our industrial policy. After the rules come out, we’ll organize training sessions for cadres at each level so that district and county cadres will have a firm grasp of the policy of opening up, their caliber will improve, and they can correctly control the direction of foreign investments. During the past few years, too many hotels were built in Shanghai. There were historical reasons for the lack of macrocontrols. For quite a few joint venture hotels, the capital for construction actually came from Chinese banks and the guarantees from Chinese financial institutions. If at the time more of these investments had been used for pillar industries, industrial production in Shanghai today would not be facing as many difficulties. It is obviously a mistake to blindly develop joint ventures that squeeze out existing markets and increase pollution. Therefore all the “Jiushi projects”4 for technical upgrading must be reevaluated. Products that incur high losses—such as standard tires that need to import large quantities of raw materials and yet can’t be exported—aren’t worth placing in a joint venture to increase their production. Similar problems are evident in the textile sector. Some projects there only need to buy foreign patents or crucial equipment; they should only bring in the technology, then digest and absorb it. From 1983 to 1985, Shanghai invested several hundred million yuan a year in technical upgrading, and this played a considerable role in maintaining the momentum of our industrial growth. Now we should also conduct...


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