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China official slams foreign investment spree
Updated: 2006-03-07 22:09

Foreigners have gained a strong foothold in some sectors of China's economy and Beijing must act now to prevent more domestic firms from falling prey to multinationals, a senior government official said on Tuesday.

Foreign direct investment (FDI) has been crucial to the export boom that has turned China into the world's third-largest trading nation. Foreign-funded firms account for almost 60 percent of the country's exports.

Li Deshui, head of the National Bureau of Statistics, called for legislation to curb "ill-willed" acquisitions of domestic companies by foreign firms and to scrap the country's decades-old preferential policies for foreign investors, notably tax breaks.

"Initially forming joint ventures and setting up wholly owned factories, multinationals are now mounting a large-scale drive to merge with, or acquire, high-quality Chinese companies," Li said.

"Some multinationals believe it's the best time to acquire Chinese firms, because they are far cheaper than U.S. and European companies," he told Reuters in an interview on the sidelines of the annual session of parliament.

The warning came amid a heated debate among academics and officials about the pros and cons of Beijing's policy of opening its economy to foreign investors, which has helped transform China into a global manufacturing hub but has also fuelled frictions with its trade partners.

The bulk of economists argue that the pace of China's opening up and reform policies should continue unchecked.

Li, who is due to retire this year, is not so sure.

Echoing recent concerns over China's sale of stakes in its major banks to foreign investors, Li said that unchecked acquisitions by foreign multinationals could pose a threat to China's economic security.

Li said that FDI, which he said totalled more than $600 billion over the past 25 years, had helped stimulate China's economic growth, but that the lion's share of the profits had remained in the hands of foreigners.

Many foreign firms had left behind serious environmental pollution and, through their acquisitions of up-and-coming companies, stymied the efforts of Chinese firms to develop their own brands and technology.

"If a large amount of profits and wealth falls into the hands of multinationals, even with a large GDP, our national interests could still be compromised ... and our nation's economic security and sovereignty could be threatened," Li said.
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