section_path: Foreign investment
section_name: Foreign investment
paragraph_text: Foreign investment
  
  From 1992 until at least 2023, China has been either the number one or number two worldwide destination for foreign direct investment.: 81 In 2022, China attracted $180 billion. As of the end of June 2020, FDI stock in China reached US$2.947 trillion, and China's outgoing FDI stock stood at US$2.128 trillion. The total foreign financial assets owned by China reached US$7.860 trillion, and its foreign financial liabilities US$5.716 trillion, making China the second largest creditor nation after Japan in the world.
  
  China's investment climate has changed dramatically with more than two decades of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. The Encouraged Industry Catalogue sets out the degree of foreign involvement allowed in various industry sectors. From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999. Foreign-invested enterprises account for 58–60% of China's imports and exports.
  
  Since the early 1990s, the government has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state.
  
  China also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares sold to foreigners carried no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion in foreign direct investment. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001. The Vice Minister of Finance Zhu Guangyao announced, foreign investors will be allowed to own up to 51% on domestic financial service companies. Formerly foreign ownership was limited to a 49% stake in these firms.
  
  Foreign investment remains a strong element in China's rapid expansion in world trade and has been an important factor in the growth of urban jobs. China's economic leadership on global capital flows emphasizes long-term infrastructure and development finance over short-term flows which, under the current order, have imposed large costs on many economies. In 1998, foreign-invested enterprises produced about 40% of China's exports, and foreign exchange reserves totaled about $145 billion. Foreign-invested enterprises today produce about half of China's exports (the majority of China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government's emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China's services sectors underdeveloped. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment (FDI) after the United States, receiving $39 billion in 1999 and $41 billion in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69.47 billion. By 2011, with the U.S. seeing a decline in foreign investment following the 2008 financial crisis, China overtook it as the top destination for FDI, receiving over $280 billion that year.
  
  Amid slowing economic conditions and a weakening yuan in 2015, December of that year saw a 5.8% drop in FDI to China. While China's rank as the top receiver of FDI continued through 2014, the slowing of inbound investment in 2015 combined with a massive rebound in foreign investment to the United States resulted in the U.S. reclaiming its position as the top investment destination. Data from the American Chamber of Commerce in China's 2016 China Business Climate Survey confirms this trend, although it also demonstrates that China remains a top investment destination. This survey of over 500 members found that "China remains a top three investment priority for six out of ten member companies," though this is a decline from the 2012 high of eight out of ten respondents considering China a top priority.
  
  Foreign exchange reserves totaled $155 billion in 1999 and $165 billion in 2000. Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003. Foreign exchange reserves were $819 billion at the end of 2005, $1.066 trillion at the end of 2006, $1.9 trillion by June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China's foreign exchange reserves are the largest in the world.
  
  As part of its WTO accession, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued. Major remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure. Warner Bros., for instance, withdrew its cinema business in China as a result of a regulation that requires Chinese investors to own at least a 51 percent stake or play a leading role in a foreign joint venture.
  
  Another major development in the history of foreign investment in China was the establishment of the Shanghai Free Trade Zone in September 2013. The Zone is considered a testing ground for a number of economic and social reforms. Critically, foreign investment is controlled via a "negative list" approach, where FDI is permitted in all sectors unless explicitly prohibited by the inclusion of a given sector on the negative list published by the Shanghai Municipal Government.
  
  On 15 March 2019, China's National People's Congress adopted the Foreign Investment Law, which comes into effect on 1 January 2020. Foreign investment in China comes with a number of ethical risks which pose major challenges which investors must navigate.
  
  From 1992 until at least 2023, China has been either the number one or number two worldwide destination for foreign direct investment.: 81 In 2022, China attracted $180 billion. As of the end of June 2020, FDI stock in China reached US$2.947 trillion, and China's outgoing FDI stock stood at US$2.128 trillion. The total foreign financial assets owned by China reached US$7.860 trillion, and its foreign financial liabilities US$5.716 trillion, making China the second largest creditor nation after Japan in the world.
  
  China's investment climate has changed dramatically with more than two decades of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. The Encouraged Industry Catalogue sets out the degree of foreign involvement allowed in various industry sectors. From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999. Foreign-invested enterprises account for 58–60% of China's imports and exports.
  
  Since the early 1990s, the government has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state.
  
  China also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares sold to foreigners carried no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion in foreign direct investment. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001. The Vice Minister of Finance Zhu Guangyao announced, foreign investors will be allowed to own up to 51% on domestic financial service companies. Formerly foreign ownership was limited to a 49% stake in these firms.
  
  Foreign investment remains a strong element in China's rapid expansion in world trade and has been an important factor in the growth of urban jobs. China's economic leadership on global capital flows emphasizes long-term infrastructure and development finance over short-term flows which, under the current order, have imposed large costs on many economies. In 1998, foreign-invested enterprises produced about 40% of China's exports, and foreign exchange reserves totaled about $145 billion. Foreign-invested enterprises today produce about half of China's exports (the majority of China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government's emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China's services sectors underdeveloped. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment (FDI) after the United States, receiving $39 billion in 1999 and $41 billion in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69.47 billion. By 2011, with the U.S. seeing a decline in foreign investment following the 2008 financial crisis, China overtook it as the top destination for FDI, receiving over $280 billion that year.
  
  Amid slowing economic conditions and a weakening yuan in 2015, December of that year saw a 5.8% drop in FDI to China. While China's rank as the top receiver of FDI continued through 2014, the slowing of inbound investment in 2015 combined with a massive rebound in foreign investment to the United States resulted in the U.S. reclaiming its position as the top investment destination. Data from the American Chamber of Commerce in China's 2016 China Business Climate Survey confirms this trend, although it also demonstrates that China remains a top investment destination. This survey of over 500 members found that "China remains a top three investment priority for six out of ten member companies," though this is a decline from the 2012 high of eight out of ten respondents considering China a top priority.
  
  Foreign exchange reserves totaled $155 billion in 1999 and $165 billion in 2000. Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003. Foreign exchange reserves were $819 billion at the end of 2005, $1.066 trillion at the end of 2006, $1.9 trillion by June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China's foreign exchange reserves are the largest in the world.
  
  As part of its WTO accession, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued. Major remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure. Warner Bros., for instance, withdrew its cinema business in China as a result of a regulation that requires Chinese investors to own at least a 51 percent stake or play a leading role in a foreign joint venture.
  
  Another major development in the history of foreign investment in China was the establishment of the Shanghai Free Trade Zone in September 2013. The Zone is considered a testing ground for a number of economic and social reforms. Critically, foreign investment is controlled via a "negative list" approach, where FDI is permitted in all sectors unless explicitly prohibited by the inclusion of a given sector on the negative list published by the Shanghai Municipal Government.
  
  On 15 March 2019, China's National People's Congress adopted the Foreign Investment Law, which comes into effect on 1 January 2020. Foreign investment in China comes with a number of ethical risks which pose major challenges which investors must navigate.
  
  From 1992 until at least 2023, China has been either the number one or number two worldwide destination for foreign direct investment.: 81 In 2022, China attracted $180 billion. As of the end of June 2020, FDI stock in China reached US$2.947 trillion, and China's outgoing FDI stock stood at US$2.128 trillion. The total foreign financial assets owned by China reached US$7.860 trillion, and its foreign financial liabilities US$5.716 trillion, making China the second largest creditor nation after Japan in the world.
  
  China's investment climate has changed dramatically with more than two decades of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. The Encouraged Industry Catalogue sets out the degree of foreign involvement allowed in various industry sectors. From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999. Foreign-invested enterprises account for 58–60% of China's imports and exports.
  
  Since the early 1990s, the government has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI. In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state.
  
  China also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special "B" shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges. These "B" shares sold to foreigners carried no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion in foreign direct investment. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001. The Vice Minister of Finance Zhu Guangyao announced, foreign investors will be allowed to own up to 51% on domestic financial service companies. Formerly foreign ownership was limited to a 49% stake in these firms.
  
  Foreign investment remains a strong element in China's rapid expansion in world trade and has been an important factor in the growth of urban jobs. China's economic leadership on global capital flows emphasizes long-term infrastructure and development finance over short-term flows which, under the current order, have imposed large costs on many economies. In 1998, foreign-invested enterprises produced about 40% of China's exports, and foreign exchange reserves totaled about $145 billion. Foreign-invested enterprises today produce about half of China's exports (the majority of China's foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government's emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China's services sectors underdeveloped. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment (FDI) after the United States, receiving $39 billion in 1999 and $41 billion in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69.47 billion. By 2011, with the U.S. seeing a decline in foreign investment following the 2008 financial crisis, China overtook it as the top destination for FDI, receiving over $280 billion that year.
  
  Amid slowing economic conditions and a weakening yuan in 2015, December of that year saw a 5.8% drop in FDI to China. While China's rank as the top receiver of FDI continued through 2014, the slowing of inbound investment in 2015 combined with a massive rebound in foreign investment to the United States resulted in the U.S. reclaiming its position as the top investment destination. Data from the American Chamber of Commerce in China's 2016 China Business Climate Survey confirms this trend, although it also demonstrates that China remains a top investment destination. This survey of over 500 members found that "China remains a top three investment priority for six out of ten member companies," though this is a decline from the 2012 high of eight out of ten respondents considering China a top priority.
  
  Foreign exchange reserves totaled $155 billion in 1999 and $165 billion in 2000. Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003. Foreign exchange reserves were $819 billion at the end of 2005, $1.066 trillion at the end of 2006, $1.9 trillion by June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China's foreign exchange reserves are the largest in the world.
  
  As part of its WTO accession, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued. Major remaining barriers to foreign investment include opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure. Warner Bros., for instance, withdrew its cinema business in China as a result of a regulation that requires Chinese investors to own at least a 51 percent stake or play a leading role in a foreign joint venture.
  
  Another major development in the history of foreign investment in China was the establishment of the Shanghai Free Trade Zone in September 2013. The Zone is considered a testing ground for a number of economic and social reforms. Critically, foreign investment is controlled via a "negative list" approach, where FDI is permitted in all sectors unless explicitly prohibited by the inclusion of a given sector on the negative list published by the Shanghai Municipal Government.
  
  On 15 March 2019, China's National People's Congress adopted the Foreign Investment Law, which comes into effect on 1 January 2020. Foreign investment in China comes with a number of ethical risks which pose major challenges which investors must navigate.