Introduction to Foreign Investment in Communications and Transportation Industry

The profit rate of the communications and transportation business as a whole is low in China. Multinational companies with the right of domestic transport are not aimed at the present profits but at offering a coordinated logistics service for their production and commercial enterprises in China. At present, more than 400 multinational companies have entered China's market. Their production and marketing activities need a guarantee system of logistics. Research shows that to cut costs of inland transport and logistics and raise efficiency of logistics chains has become a major measure to help reduce international trade cost.

As foreign-funded enterprises develop in China, which is opening wider to the outside world, the communications sector is becoming increasingly market-oriented, and this will sure attract more foreign enterprises to China's transportation market.

However, monopoly still exists in the present communications and transport industry, the threshold for market access is high, and various administrative and policy barriers are still there. Although relevant departments have set to adjust field policies, the adjustment for the entry of foreign investment should take a long period of time to produce effects. Therefore, in the earlier stage of China's WTO entry, the flow of foreign capital to China will not be active.

Foreign investors have entered into such key fields of China's transport market as projects which are supported with high percentage of technology and with great market potential.

Included are high-speed passenger transport projects, material flow, express mail, container through transport in various forms and motor vehicle maintenance in road transport. So far foreign funds used by China's communication and transport business are mainly loans from the International Development Bank and foreign governments with the government as the debtor.

One example is the civil aviation service sector. From 1980 to the end of 2001, the civil aviation service industry used US$30.3 billion foreign capital, including US$1.879 billion loans from foreign governments and other foreign soft loans, US$606 million of foreign direct investment, US$1.77 billion of funds raised through listing on overseas market and B-share market, and US$26 billion by way of financing and leasing 437 imported planes. Such method of using foreign capital by way of obligation has helped boost China's communications and transport business and helped the business to bear excessive high assets-liabilities ratio.

Therefore, it is necessary to raise the proportion of communications and transport business in using foreign direct investment. Foreign direct investment requires share-holding enterprises as the mainstay. But China's present micro-systems and macro-policies are not ripe. On the one hand, the appropriate enterprise system is not ready, and, on the other hand, the present slow transport process and high funding policies make it hard for foreign business people to get investment returns.

Introducing foreign funds depends on relevant enterprise system and corresponding policies and the reform of communication and transport enterprises and the restructuring of macro-management should go faster to suit the industry's financing requirements.

Beginning from July 2002, overseas investors may build foreign-funded logistics enterprises in a number of areas in China including Jiangsu, Zhejiang, Guangdong, Beijing, Tianjin, Chongqing, Shanghai and Shenzhen in the form of Sino-foreign joint venture or cooperation.

In fact, in the 1990s, some internationally well-known logistics enterprises had entered China's transport, storage or container-shipping services. At present foreign-funded logistics enterprises may operate such business as international logistic business and third party logistic business.

The business scopes for international logistics are: import and export businesses and the related services, including self-operation and agencies, or entrusted by the processing enterprises to handle the import and export businesses; to provide transport agent services for the import and export of overseas commodities in the field of maritime, aviation and land transport.

The qualifications for investors are at least one side of the investors should have the operational experience and sound achievements in international trade or commodity transport or being an agent for commodity transport. The investors who meet the qualifications should be the No.1 shareholders of the Chinese side or foreign side. The share limit is the registered capital shall not be less than US$5 million, the foreign investment shall not exceed 50 percent of the total register capital, the joint venture enterprises shall have fixed business places and facilities.

As for the third party logistics, the business scope covers the land transport, storage, loading and unloading, processing, packing, delivering and related information services for general commodities; the related consulting service; agent for domestic goods transport; the logistic business managed and operated through computer network.

The qualifications for investors are at least one side of the investors should have the operational experience and sound achievements in transport or logistics. The investors who meet the qualifications should be the No.1 shareholders of the Chinese side or foreign side. The share limit is the registered capital shall not be less than US$5 million, there is not a strict limit for share proportions, however, the investor are required to provide necessary facilities for logistic business.

[Source: The Statistical Report on Highways, Waterway and Transportation]