Led by First Minister Alex Salmond, three senior business delegations from Scotland visited China in July. While in China, the Scottish entrepreneurs and their Chinese partners reached agreements in a wide range of fields, including offshore wind power development.

The list of projects signed exceeded two pages, Salmond said. In the next two years the number of Scottish companies investing in China is projected to increase 50 percent.

Statistics of the UN Conference on Trade and Development (UNCTAD) show about $95 billion worth of foreign direct investment (FDI) poured into China in 2009, making the country the world's second biggest FDI destination, after the United States.

Addressing concerns

A recent report of the World Bank Group, "Investing Across the Borders 2010," finds China's limits on foreign equity ownership are stricter than any other country. The report presents comparative studies of 87 economies based on four indicators-investing across sectors, starting a foreign business, accessing industrial land and arbitrating commercial disputes. A few countries' chambers of commerce have also raised doubts over China's investment climate.

The four indictors used by the World Bank Group are only part of the story, said Liu Yajun, Director General of the Department of Foreign Investment Administration of the Ministry of Commerce. Other factors, such as market potential, economic growth, supporting services and government policies, should also be taken into account when evaluating a country's investment environment.

Market access systems vary from country to country. When comparing the policies of 87 countries with different administrative systems, the results can only be questionable, Liu said.

Based on WTO classifications, China has opened to foreign investors 100 service sectors, far more than the average number of developing countries. By contrast, the United States, the self-proclaimed "most open economy," has opened 101 sectors.

In the past two years, the Ministry of Commerce has canceled or simplified five categories of administrative examination and approval procedures concerning the establishment of foreign-invested companies. It has also delegated 25 categories of these procedures to local governments.

In 2009, the Ministry of Commerce handled 298 examination and approval applications involving foreign investment, a drop of 90 percent from a year before when it processed more than 3,000 such applications. Local governments are now responsible for dealing with most of the applications.

The Ministry of Commerce is also considering launching online examination and approval, and introducing standard procedures for the examination and approval of contracts and charters establishing foreign-invested companies, Liu said.

With a total land area of 9.6 million km and a population of more than 1.3 billion, China suffers a land shortage on a per-capita basis, Liu said. "That's why the government regulates land use with examination and approval procedures. Other countries should understand that."

To date, land applications by foreign investors have mostly been approved.

Regarding commercial arbitration, Liu said China has in place arbitration, legal remedy and administrative litigation systems. The government is also ready to address complaints from business communities.

"There must be some misunderstandings when (the World Bank Group) said China has the strictest limits," Liu said.

Listening to multinationals

A number of organizations have affirmed China has a good investment climate, said Yao Jian, spokesman of the Ministry of Commerce. For instance, the UNCTAD ranked China first among 15 leading investment destinations around the world in a recent report. In a business environment survey conducted by the American Chamber of Commerce in China, 58 percent of the companies surveyed believe they will be able to produce more for, buy more from and offer more services for the Chinese market once they establish a presence in China.

Statistics of the Ministry of Commerce show China approved 12,400 foreign-invested companies in the non-financial sector from January to June 2010, up 18.8 percent from the same period last year. Paid-in foreign investment totaled $51.43 billion, up 19.6 percent. In June alone, 2,739 foreign-invested companies were set up, with a paid-in investment of $12.51 billion, up 8.3 percent and 39.6 percent respectively. By June, foreign investment to China had recorded a positive annual growth for the 11th consecutive month.

In other words, foreign investment to China started to increase in August 2008 over the same month in the previous year when the financial crisis was at its height. This showed China's measures to cope with the financial crisis, improve investment climate and enhance market openness had borne tangible fruit, Liu said.

Indeed, China has encountered new problems as it carries out market-based reforms, Yao said. But the Chinese Government is willing to heed the opinions of multinational corporations. For instance, top Central Government officials as well as ministers have attended various seminars and hearings to learn about the difficulties of multinationals from different countries.

Redoubling efforts

In recent years, there have been concerns at home and abroad about the sustainability of the "China advantage." As labor costs rise in China, critics say, foreign investors may move their operations to lower-cost countries such as Bangladesh, Viet Nam and India.

Liu said rising labor costs are a trend not only in China but also in China's neighboring countries as well as Southeast Asian countries. Labor costs, however, were only one of the factors foreign investors had to consider.

Liu said he had not heard of plans for foreign investors' flight to Southeast Asian countries. Although China's labor costs were rising, they were still not high. Moreover, China's overall costs were low.

Rather than relying solely on cheap labor, China is gaining a comprehensive competitive advantage because of its huge market potential, premium supporting services, high labor quality and favorable policies, he said.

James Zhan, Director of the UNCTAD's Investment and Enterprise Division, said China's investment climate has not deteriorated as some media had reported. Its policy on foreign investment had changed because of the upgrading of its industrial structure and global economic rebalancing. But these changes were generally conducive to attracting foreign investment.

When it came to specific companies, the policy changes may take a toll on labor-intensive businesses or companies consuming large amounts of energy and resources while causing severe pollution. But they will present opportunities for hi-tech companies producing products with high added value.

As investors set great store by the Chinese market, more foreign investment will surge into China in the second half of this year, Liu said.

China has recently adopted a series of policies aimed at further opening its market and encouraging foreign investment. Commerce Ministry officials said the policies were proof China would not slacken its efforts to attract foreign investment.