RUN-UP FOREIGN FUNDS: Shanghai, China’s financial hub, has seen more foreign-funded financial institutions and banks. Despite a host of restrictive measures on speculative capital inflow, the country’s reform and opening-up policy is consistent
　　BusinessWeek recently published an article reporting that China is becoming hostile to foreign capital and that China’s policy on foreign investment will change to reflect that attitude. Yi Xianrong, a researcher at the Institute of Finance and Banking of the Chinese Academy of Social Sciences, explains China’s position in an article posted on People’s Daily Online.
　　Foreign speculation on the domestic real estate market has been restricted, steps to introduce a uniform corporate income tax policy on foreign-funded and domestic companies are accelerating, and more and more people are questioning loosely restricted foreign takeovers of Chinese enterprises. Members of the foreign press and industry leaders have contacted me, asking whether China will abandon the policy of reform and opening up that has been in place for the past 20 or so years. I immediately allayed their concerns. On the contrary, China is making further economic reforms to facilitate the process of opening up. There will, however, be some strategic adjustments made in line with the changing economic situation.
　　Restricting the flow of foreign capital into the real estate market is not a policy unique to China. Both developed and developing countries have introduced or are introducing a similar policy. The Republic of Korea, for instance, has imposed restrictions on foreign capital entering its property market, making it almost impossible for foreign investors to engage in speculative transactions. The same applies in France. China is by no means the first country to introduce this measure.
　　Every person in a modern society has the right to housing. In China, the development of the real estate market is aimed at meeting and improving people’s basic housing needs, rather than wealth appreciation. In light of the scarcity of publicly owned land, it is the Chinese Government’s duty and responsibility to ensure every citizen has a share of public resources. It would be a dereliction of duty if the government were to allow foreign capital to enter the domestic real estate market for speculation in the presence of poor public housing conditions and negligible housing welfare in the country. The Chinese Government is justified in their decision to restrict foreign investment in creating property bubbles.
　　Some have claimed that these restrictions constitute a policy of discrimination that is unfair to foreigners. Some people believe this policy is only an interim measure. The terms “discrimination” and “unfair” must be differentiated between. If the world market were completely open and unified, all transactions would be equal. Traders would follow the same rules and be able to choose any mode of transaction. But does this kind of market really exist? If it did, there would be no need for the WTO, and there would be no trade barriers between countries. However, every country imposes a set of rules and regulations on their trading partners. The Chinese Government has selected to upgrade their restrictions on foreign investment in real estate projects. If people insist on regarding this as a policy of discrimination, then there are examples of discrimination everywhere. 　　The other reason the Chinese Government has introduced these measures is to stop investors from exploiting the people and the market (perhaps by raising housing prices). When speculation peaks and sparks an economic crisis, foreign investors will withdraw their capital and the domestic population will be left to deal with the economic crisis. The burst of property bubbles in countries and regions affected by the East Asian financial crisis in 1997 and their severe impacts on local economies are irrefutable evidence of this. The Chinese Government has acted wisely. The restrictions, in fact, are quite moderate.
　　Some people contend that restrictions on foreign capital entering the Chinese real estate market will have little effect. In my view, however, these restrictions send a clear message to foreign investors; they will have to take a lot of risks if they want to enter the market.
　　China’s policy of reform and opening up has developed too far to reverse. However we must remember to safeguard national interests in the process of development. This is the ultimate target of China’s reform and opening up drive.

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