China Rules by Julian Chang Ilan Alon

Author:Julian Chang Ilan Alon [Ilan Alon, Julian Chang, Marc Fetscherin, Christoph Lattemann and John R. McIntyre]
Language: eng
Format: epub
Publisher: Palgrave Macmillan
Published: 2008-12-31T16:00:00+00:00

Political and administrative actors

There are a number of key political and administrative actors in China that impinge upon OFDI by setting the laws and regulations confronting outward investing firms and by being actors in the investment approval process. The main actors are the State Council, the State Administration for Foreign Exchange (SAFE), the Ministry of Commerce (MOFCOM), the People’s Bank of China (PBC), the National Development and Reform Commission (NDRC), and the State Asset Supervision and Administration Commission (SASAC). The State Council drafts and develops law and regulations as well as coordinates national economic development. It also manages foreign affairs and concludes bilateral treaties. It decides upon major economic policies and liberalization measures, although policy initiatives may come directly from subordinate organs such as SAFE or MOFCOM (Zhao, 2006). SAFE was established in 1979 under the Bank of China and is responsible for administering the usage and flow of foreign exchange.1 SAFE consolidated activities and responsibilities that were formerly distributed across several ministries in relation to the supervision of China’s foreign exchange control (Lin & Schramm, 2004). Although the authority over SAFE moved in 1982 from the Bank of China to the newly created central bank, the People’s Bank of China, SAFE remained relatively independent until a subsequent government restructuring in 1998 (Lin & Schramm, 2003; Shi & Gelb, 1998). The restructuring led to SAFE strengthening its OFDI-related mandate in the following ways: (i) the reporting of the balance of payments (BOP) data to the State Council and the International Monetary Fund, (ii) recommending foreign exchange policies to the PBC, (iii) overseeing the transfer of foreign exchange out of, and into, China under the capital account of the BOP, and (iv) managing China’s foreign exchange reserves (Zhang, 2004).

MOFCOM was established in its current form and function in 2003.2 Its major responsibilities with regard to Chinese OFDI relate to: (i) the supervision of Chinese OFDI by drafting and implementing policies and regulations and considering nonfinancial OFDI projects for approval; (ii) bilateral and multilateral negotiations on investment and trade treaties and representing China at the World Trade Organization and other international economic organizations; (iii) ensuring the alignment of China’s economic and trade laws with international treaties and agreements; and (iv) coordinating China’s foreign aid policy and relevant funding and loan schemes (Munro & Yan, 2003). These functions provide MOFCOM with direct and indirect opportunities to guide and influence the scope and direction of Chinese OFDI. Indeed, MOFCOM issued the first regulation on Chinese OFDI as early as 1984 (Zhang, 2003).

The PBC was established as China’s central bank in 1983 and is currently directly supervised by the State Council (Zhang, 2004). The PBC is responsible for the overall financial policies and rules and dealings with international financial organizations such as the World Bank. It also supervises and manages China’s foreign exchange reserves (Chang, 1989). With respect to the latter, the PBC imposed significant changes to China’s foreign exchange regime in 1994, providing it with tighter foreign exchange control (Barale & Jones, 1994). The

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