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Regular Press Conference of Ministry of Commerce on July 15, 2014

Dear friends from the media:

Welcome to today's press conference. First I will brief you on China’s commercial performance in January-June of 2014, and take the questions of your concern.

I. Commercial Performance in Domestic Market

In the first half year of this year, the domestic consumer market remained steady. According to the monitoring of 5,000 major retail enterprises by the Ministry of Commerce, sales of January-June went up 6.3% year on year, 0.1 percentage points higher than that of January-May. Following are the main characteristics of the consumer market in the first half year.

1. New type of business grew rapidly. Among 5,000 major retail enterprises monitored by the Ministry of Commerce, online shopping went up 29.9% year on year, 23, 24.6 and 25.8 percentage points higher respectively than that of special stores, supermarkets and department stores.

2. Green consumption enjoyed a steady growth. Among 5,000 major retail enterprises monitored by the Ministry of Commerce, sales of inverter air conditioners increased 18.7%. According to statistics of China Association of Automobile Manufacturers, sales of new energy automobiles in the first half year went up 2.2 times year on year.

3. Consumption of culture and sports, and communication increased. Among 5,000 major retail enterprises monitored by the Ministry of Commerce, sales of sports and entertainment, and office supplies were up 2.9% and 3.5% respectively, 3.1 and 5.4 percentage points higher than that of the same period of the previous year. Among that, sales of fitness equipment were up 9.6%. In the first half year, sales of communication equipment went up 8%, 4.6 percentage points higher than that of the same period of the previous year.

4. Sales of household appliances and automobiles slowed down. Among 5,000 major retail enterprises monitored by the Ministry of Commerce, sales of household appliances were up 5.3% year on year, 6.2 percentage points slower than that of the same period of the previous year. Among that, sales in May and June were up 7.4% and 7.8% respectively, a slow but steady growth. According to statistics of China Association of Automobile Manufacturers, sales of passenger vehicles witnessed a year-on-year growth of 11.2%, 2.6 percentage points slower than that of the same period of the previous year.

5. Consumer price remained steady. According to statistics of the State Statistics Bureau, in the first half of the year, CPI was up 2.3% year on year, 0.1 percentage points slower than that of the same period of the previous year, and that of June was 2.3%, 0.2 percentage points slower than that of May. According to MOFCOM, in 36 large and medium-sized cities, prices of agro-foodstuff went up 2.6% year on year in June, 0.4 percentage points higher than that of May. Among that, the prices of milk, beef, and egg went up by 9.5%, 7.2%, and 6.4% respectively. The prices of pork and soybean oil were down 3.7% and 3.9% respectively.

II. Foreign Trade

According to Customs figures, China’s total import and export in January-June reached 12.4 trillion yuan, down 0.9% year on year (the same below). Export was 6.5 trillion yuan, a decrease of 1.2%, and import 5.9 trillion yuan, down 0.6%. Trade surplus was 630.61 billion yuan, a decrease of 6.5%. In terms of U.S. dollars, total import and export stood at US$2020.86 billion in January-June, up 1.2%. Export was US$1061.86 billion, up 0.9%, and import US$959.0 billion, up 1.5%. Trade surplus was US$102.87 billion, a decrease of 5.1%. The main characteristics of foreign trade in June are as follows:

1. Both export and import enjoyed a positive growth. In terms of U.S. dollars, China’s import and export in June reached US$ 342.01 billion, up 6.4%. Among that, export reached US$ 186.79 billion, up 7.2%, and import US$ 155.22 billion, up 5.5%. Trade surplus was US$ 31.56 billion, up 15.8%.

2. Influence of high cardinal number decreased and growth of import and export expanded. Influenced by the high cardinal number of last year (mainly the first four months), in the first four months of this year, export and import of February and March witnessed a negative growth, decreasing 4.9% and 9% respectively. From April, growth of import and export began turning from negative to positive and expanding monthly. Growth in April-June was 0.8%, 3% and 6.4% respectively.

3. Trade with developed markets remained increasing, and trade with Hong Kong regained growth. In June, trade with the EU, the U.S. and Japan increased 13.4%, 4.8% and 3.2% respectively, 12.2, 3.6 and 2 percentage points higher than that of national export in June. Growth of trade with the EU and the U.S. remained the same with that of the first five months, and trade with Japan was 2.8 percentage points higher than that in May. Trade with Hong Kong grew 5.8%, regaining growth after decreasing in five consecutive months. Trade with emerging entities had ups and downs, among which, trade with ASEAN, India and South Africa was up 10.9%, 9.6% and 5.8% respectively, while trade with Russia and Brazil decreased 2.3% and 3.3% respectively.

4. Exports of mechanical and electrical products and high-tech products went down by a small margin. In June, exports of mechanical and electrical products and high-tech products registered US$102.52 billion and US$50.67 billion, respectively, up 5.1% and 3.3%, respectively, each with a drop of 1.5 percentage points than that of May. The export of textiles, clothing, bags & suitcases, footwear, toys, furniture and plastic products was US$41.05 billion, up 5.7%, 0.6 percentage points lower than that of May.

5. Import and export of conventional trade maintained a rapid growth and import of processing trade began to pick up. In June, China’ s import and export of conventional trade totaled US$187.29 billion, up 5.7%, 3.6 percentage points higher than that of May. The import and export of processing trade totaled US$108.68 billion, up 5.8%. Among others, the export of processing trade was US$67.87 billion, up 1%. The import of conventional trade registered US$40.81 billion, up 15.3% from -1.2%.

6. Exports of State-owned and private enterprises enjoyed a rapid growth while exports of foreign-owned enterprises grew slowly. In June, exports of state-owned and private enterprises reached US$21.47 billion and US$81.86 billion, respectively, going up 3.6% from 0.7% of May and up 16% from 13.2%, respectively. Exports by foreign-owned enterprises totaled US$83.46 billion, with a growth rate of 0.6% from 3.2% in May.

III. Foreign Investment in China

In January-June of 2014, a total of 10,973 foreign-funded enterprises were approved, up 3.2% year on year. Actually utilized FDI reached US$63.33 billion (equivalent to 389.95 billion yuan), up 2.2% year on year (excluding data of banking, securities and insurance). In June, utilized foreign capital was US$14.42 billion (equivalent to 88.86 billion yuan), up 0.2% year on year. The main characteristics of foreign investment in January-June are as follows:

1. Utilized FDI in the service sector maintained fast growth. In January-June of 2014, utilized FDI in the service sector registered US$35.2 billion, up 14.8% year on year, accounting for 56% of the national total, of which, utilized FDI in the distribution service industry took a larger percentage and reached US$4.69 billion. Utilized FDI in agriculture, forestry, animal husbandry and fishery amounted to US$900 million, down 0.2% year on year, accounting for 1% of the national total. Utilized FDI in manufacturing was US$22.8 billion, down 13.9% year on year, accounting for 36% of the national total, of which, utilized FDI in electronic equipment manufacturing including telecommunications equipment and computers reached US$3.74 billion, down 4.2% year on year, transportation equipment manufacturing reached US$2.42 billion, down 8.49%, and chemical raw materials and chemical products manufacturing reached US$1.73 billion, down 30.8%.

2. Investment from major countries and regions maintained steady growth. In January-June of 2014, actual FDI in the Chinese mainland from top 10 investors (Hong Kong, Taiwan, Singapore, the ROK, Japan, the U.S., Germany, the UK, France and the Netherlands) amounted to US$59.53 billion, accounting for 94% of the total, up 3.9% year on year, and 1.7 percentage points higher than the average of the whole. Investment from the ROK and the UK reached US$2.8 billion and US$700 million, up 45.6% and 76.4% year on year respectively. That from Japan and the U.S. was US$2.4 billion and US$1.74 billion, down 48.8% and 4.6% on a year-on-year basis respectively. Meanwhile, actual FDI from 28 EU countries in January-June reached US$3.58 billion, down 11.2% year on year and that from ASEAN totaled US$3.42 billion, down 19.2% year on year.

3. Utilized FDI in central China enjoyed rapid growth. In January-June of 2014, utilized FDI in eastern China was US$52.6 billion, up 2.8% year on year; utilized FDI in central China was US$6.1 billion, up 9.6% year on year, and utilized FDI in western China was US$4.6 billion, down 11.5% year on year. In January-June, paid-in FDI in China’s eastern, central and western regions accounted for 83%, 9.6% and 7.4% respectively of the total.

IV. China’s Investment and Economic Cooperation Overseas

Direct investment overseas. In January-June of 2014, Chinese investors made direct investment in 3,224 businesses overseas in 146 countries and regions. Total direct investment reached US$43.34 billion (equivalent to RMB 266.05 billion), down 5% year on year. As of the end of June 2014, China’s non-financial direct investment overseas totaled US$569.0 billion (equivalent to RMB 3,492.86 billion).

In January-June of 2014, The Chinese mainland’s investment in seven economies, namely Hong Kong, ASEAN, EU, Australia, U.S., Russia and Japan, reached US$28.82 billion, taking up 66.5% of the total foreign direct investment during the same period, with the proportion decreasing by 4.2 percentage points. Investment in Hong Kong fell by 29.3% year on year. Investment in EU and Russia increased by 221.7% and 109.5%, respectively. Investment in ASEAN was US$2.52 billion, up 14% year on year. Investment in the U.S. reached US$2.46 billion, up12.8%. Investment in Australia totaled US$1.69 billion, up 8.3% year on year.

Contracted projects overseas. In January-June of 2014, the turnover of China’s contracted projects overseas amounted to US$61.58 billion (equivalent to RMB 378.02 billion), up 6.5% year on year. The value of newly-signed contracts was US$81.04 billion (RMB 497.47 billion), up 5.7% year on year. The projects each with a contract value of over US$500 million were 302 (23 less than last year’s 325), with a total contract value of US$65.08 billion, taking up 80% of the total value of newly-signed contracts. The projects each with a contract value of US$100 million or more were 168, 20 less than that in the same period of last year.

In June, the turnover of China’s contracted projects overseas was US$14.68 billion (RMB 90.11 billion), up 4% year on year. The value of newly-sighted contracts was US$27.68 billion (RMB 169.92 billion), up 37.3% year on year.

Labor service cooperation overseas. In January-June of 2014, labor service personnel dispatched overseas reached 255,000, an increase of 29,000 over the same period of 2013. Labor service personnel sent abroad for contracted projects were 124,000, and those for labor cooperation projects were 131,000. By the end of June 2014, all labor service personnel dispatched overseas were 936,000, 65,000 more than that at the end of June 2014.

In June, labor service personnel dispatched overseas was 55,000, an increase of 14,000 over the same period of 2013.

V. Service Outsourcing

In the first half of this year, service outsourcing in China maintained a rapid development. According to statistics from the Department of Service Trade and Commercial Services of MOFCOM, in January-June of 2014, the contracts on service outsourcing totaled 87,507, with combined contract value of US$ 52.21 billion, an increase of 35.3% year on year. The value of contracts executed amounted to US$ 37.20 billion, up 36.2% year on year. The total value of contracts with clients overseas reached US$ 34.96 billion, up 28% year on year. The value of contracts realized amounted to US$ 25.34 billion, up 31.1% year on year.

Major markets of service outsourcing were the U.S., EU, China’s Hong Kong, and Japan. In January-June of 2014, the executed contract value in service outsourcing from the U.S., EU, Hong Kong and Japan was US$6.08 billion, US$3.54 billion, US$3.48 billion and US$2.68 billion, respectively, accounting for 24.0%, 14.0.%, 13.7%, 10.6% respectively among the total value of contracts.

Pilot cities played a remarkable role in terms of industrial clustering. In January-June of 2014, the contrat value of offshore service outsourcing in 21 service outsourcing pilot cities totaled US$31.94 billion, an increase of 28.8% year on year. The executed contract value reached US$22.98 billion, up 32.3% year on year. Offshore contract value and executed contract value of the 21 cities accounted for 91.4% and 90.7% of the national total respectively. The pilot cities had a leading role in industrial clustering.

Jobs in service outsourcing increase steadily. In January-June of 2014, newly increased employees in the service outsourcing sector reached 324,000, among which 228,000 were university students. As of the end of June, the number of enterprises in the service outsourcing sector totaled 26,227 with 5,686,000 employees, including 3,787,000 with college education or above, accounting for 66.6% of the total.

ITO service took the lead. In January-June of 2014, information technology outsourcing (ITO), knowledge process outsourcing (KPO) and business process outsourcing (BPO) accounted for 53.3%, 32.9% and 13.8% of China’s total service outsourcing, respectively, of which ITO took the lead. KPO such as intellectual property research, analysis and data mining, pharmaceutical and biotechnology R&D and testing grew rapidly.

The above report is the main business operating situation from January to June. Welcome any questions.

China Daily: People are quite concerned about China’s foreign trade. Given the situation in the first half of this year, what is your projection for foreign trade in the second half? And will we be able to realize the 7.5% foreign trade growth target for the whole year? Furthermore, production cost in China is already close to that in the US according to some reports by consulting firms. Under such circumstances, what new advantages does China’s foreign trade possess? Thank you.

Shen Danyang: Judging from the growth of foreign trade since the beginning of this year, the impact of a high base last year (the high base of export to certain region in the first four months last year has led to anomalies in foreign trade growth in the first four months of this year) has gradually abated, thanks to the gradual payoff of the stimulus policies to steady foreign trade growth, and to the rebound of market demand in major developed countries. Therefore, based on the information we gathered from visits to the provinces and enterprises, and on the questionnaire-based survey the Ministry of Commerce conducted with 2,000 key foreign trade enterprises, we find that uncertain and unstable factors that affect foreign trade still exist, as those enterprises surveyed shared many concerns over factors such as external demand, cost and trade frictions. However, our overall judgment is that confidence of exporting enterprises is rising continuously, and export situations are improving every single month. According to our knowledge and our questionnaires, exporting enterprises seem to be quite confident about their growth prospect. It is therefore projected that there would be a marked rally in foreign trade growth in the second half of the year, depicting a yearly trend featuring low growth in the first half and high growth in the second. If we exclude the high base factor caused by the anomalies in trade in the beginning of last year, the 7.5% target of foreign trade is achievable with an effort.

Shen Danyang: On the other question. Some foreign consulting firms say that China’s foreign trade no longer enjoys an advantage, especially when it comes to price and cost, where the advantages are running thin. Our view is that in recent years, as labor and land costs continue to rise, the traditional advantages of China’s export products have to some extent been eroded. However, it is worth noting that China’s foreign trade development still enjoys many favorable conditions and new advantages. We should on the one hand give full play to existing favorable conditions, and on the other hand strive to form new advantages. China’s foreign trade remains competitive in the following three main aspects:

First, China still enjoys a comprehensive competitive edge. For instance, we have complete infrastructure, well-developed industrial support, a well-educated labor force, the hardworking and intelligent characteristics of the Chinese, a high quality trained workforce, in all of which we have our confidence. Overall, there is a structural complementarity between the industries of China and those of the developed countries. I assume that such a complementarity will last for a considerably long period of time. This is a very important competitive advantage. We have to have faith in it.

Second, we have already cultivated a group of internationally competitive industries and businesses. China owns proprietary intellectual property rights to large-scaled complete plant equipment used in communication, power, rail transport and others, and enjoys conspicuous advantages in terms of price and technology. Since the outbreak of the financial crisis, export relating to the aforesaid products or industries has maintained an annual growth rate of over 15%. Take Huawei Technologies Co., Ltd. for example. It has become the world’s largest supplier of telecommunications equipment, and possesses proprietary intellectual property over its technologies. The competitiveness of China’s private enterprises is also strengthening. Since China’s WTO accession, their export growth rate has been 18.4 percentage points higher than the national average on a yearly basis. They have become the most dynamic market players with the greatest export potential when it comes to China’s foreign trade. The reason why we need to have faith is because very importantly private enterprises, following many years of foreign trade reform, have gained very strong competitiveness and are becoming ever more active. Without private businesses, it would be impossible to imagine today’s achievements in foreign trade.

Third, a very important guarantee factor is that the Chinese government sets great store by the foreign trade work. In recent years, the State Council issued successively policy measures aimed at stabilizing foreign trade growth and readjusting foreign trade structure, hence creating a sound policy environment and development conditions for enterprises. On 4 May this year, the General Office of the State Council promulgated the Opinions Regarding Support for the Stable Growth of Foreign Trade, which focuses on stabilizing foreign trade at present and at the same time deals with optimizing structure in the long run. The implementation of this document will enable the creation of new competitive advantages in China’s foreign trade.

Global Times: I have two questions. First, statistics show that in the first six months of this year FDI from Japan, the US, the ASEAN and the EU to China has all declined in varying degrees. What are the reasons? In addition, there was a marked increase in FDI from Korea and Britain to China. Why? Second, US media recently published some articles claiming that the Golden Era for multinationals in China had ended, and that senior managers of some American companies believed that the Chinese government was skewed toward domestic companies, and that the competitive environment had become less favorable for foreign investment enterprises (FIEs). What is your view regarding this? Thank you.

Shen Danyang: Like what I said responding to the foreign trade question, utilization of FDI also experienced some changes in the first half of this year. Some in the media believe that the Golden Era for foreign investment in China is over, implying that China is no longer competitive in terms of attracting foreign investment. We disagree with their view. It is possible that certain individual enterprises might claim that they have encountered some competition in China and found their life a bit harder than before. But what happened to these individual enterprises is insufficient to represent the overall picture. We believe that their claim is not adequately evidenced and is unfounded. There are also people who believe that China now pays more attention to private and domestic enterprises, rather than FIEs. In fact, all along, including the during the period following the promulgation of the Decision of the 18th CPC Central Committee, the Chinese government has been reaffirming that it treats all types of enterprises samely. FIEs still face ample business opportunities in China. Why do I say so? From the policy point of view, China’s commitment to expanding opening up and actively absorbing foreign investment has remained unchanged. Moreover, the Decision of the 18th CPC Central Committee on Comprehensively Deepening Reform has shored up the confidence of FIEs in making long-term investment in China. From a market competition perspective, although there are FIEs that lack confidence in investing in China, statistics suggest that the majority of FIEs are still bullish about the investment climate and business opportunities in China.

Investment from some countries and regions to China has decreased. For instance, investment from the US and Japan to China dropped in the first half of this year. However, investment from many other countries to China has increased. Take the statistics concerning the US for example. In the first half of the year, the actualized US direct investment to China did indeed decrease. Nevertheless, we believe that it was just a short-term statistical fluctuation, which is all very normal. As for the trend of cross-border direct investment, we are always for the view that it should be observed in longer periods. The sudden rise, or fall, in investment statistics of either Chinese outward investment or foreign inward investment during a certain period or certain months is more often than not a result of some large-value projects taking place during that time. Therefore the fluctuations resulting from such occurrences should not be observed in the time span of only one or two months. Rather, they should be looked at in a medium- to long-term time span of say half a year or one year for the sake of objectivity. US direct investment in China registered a year-on-year decrease of 9.3% from January to May this year, and a 4.6% decrease to 1.74 billion US dollars from January to June. By comparing the two percentiles of January-May and January-June, one can tell that the decline in US investment in China is narrowing. Furthermore, even if US investment in China decreased in value terms, the number of US-funded enterprises newly established in China reached 567, up by 4.4% year on year. So why is it that the number of enterprises rose while investment value dropped? One of the reasons for this is that we have relaxed or canceled this year the restrictions on the paid-in capital requirement in registration for foreign investors.

As for the two-way investment cooperation between China and the US in the future, we are still quite optimistic. The recently closed 6th China-US Strategic and Economic Dialogue has achieved some positive outcomes. Furthermore, China and the US are negotiating a Bilateral Investment Treaty. We believe that with the concerted efforts of both sides, the room for China-US investment cooperation will grow larger, and the economic cooperation will score new progress.

National Business Daily: We know that reform has been at the top of the new government’s agenda and that the ministries are implementing reform tasks in their purview this year. I’d like to know what progress has the Ministry of Commerce made in this regard in the first half of the year and in what specific areas.

Shen Danyang: Since the start of the year, MOFCOM has been advancing reforms in two major areas --- or under two themes---namely, reforming the domestic commerce system and building a new open economy in line with the overall arrangement of the central government. First half of the year saw major reforms carried out in full swing, achieving preliminary results. I will elaborate our work along these two lines of reform.

First, we have scored progress in four areas in terms of reforming the domestic commerce system and establishing a rule-based business environment. First, the top-down design is basically completed. On the basis of thorough research, we have formulated the plan for the pilot project of comprehensive domestic commerce reform and mapped out the overall strategy for advancement. Second, relevant legislation work has started. As regards the domestic trade system, one thing worth noticing is that legislation in this area was few and insufficient, especially in comparison with that in foreign trade. So we need to start with legislation. ”One Law and Three Sets of Rules”--- Merchandise Circulation Law, Rules on Recycling and Disassembling of End-of-Life Vehicles, Rules on Pawnbroking, Rules on Fair Trading between Retailers and Suppliers, have been listed on the State Council’s legislation plan for 2014. And we at MOFCOM have done a great deal of preparatory work. Third, efforts are well underway to establish long-term mechanisms for eliminating regional blockades and sectoral monopoly. MOFOM, together with other relevant government bodies, printed and issued the Work Plan for Removing Regional Blockades and Sectoral Monopoly, and oversaw the establishment of coordination mechanisms led by local commerce departments. Currently, it is launching a six-month campaign with the Legislative Affairs Office of the State Council to sort out rules concerning regional blockades and sectoral monopoly. Fourth, promote public welfare commerce facilities. MOFCOM drafted, printed and released the Work Plan on Establishing Backbone Networks for Nationwide Agricultural Products Distribution. Development of welfare commerce facilities such as the above network has already started. These are the four areas of progress regarding reform of the domestic commerce system.

In respect of building a new open economic system, encouraging progress has been made in six areas. First, overhaul the foreign investment administration regime. We have drawn up the work plan for the pilot program to improve review and approval procedures for foreign investment projects and drafted the work plan to introduce registration filing to the encouraged and permitted categories. We are revising the Administration Methods for Overseas Investment which will substantially streamline the verification procedures for setting up businesses overseas. Negotiations on bilateral investment treaties are also progressing smoothly. Second, further advance the Shanghai Pilot Free Trade Zone. With State Council approval, 31 measures have been adopted for greater liberalization in the zone. The foreign investment negative list 2014 was released on July 1, encompassing 139 restrictive measures, which is 26.8% less than the 2013 version. Third, create new models of processing trade and deepen reform on administrative approval procedures for processing trade. Fourth, accelerate FTA strategies on the basis of FTAs with surrounding countries. Fifth, move faster with the unification of laws governing domestic and foreign investments. Sixth, promote other work related to the endeavor towards building a new open economy. For example, we are advancing negotiations on new topics such as environmental conservation, investment protection, government procurement and e-commerce under bilateral and multilateral frameworks in a positive and steady way. We are implementing trade facilitation measures reached at the WTO and establishing the trade policy compliance regime.

China Radio International: I have two questions. First, President Xi has embarked on his trip to Latin America. Where do the commercial relations between the two sides stand at the moment? Second, you just mentioned the Notice on Further Strengthening Trade Policy Compliance issued by the General Office of the State Council. We notice that it requires various government bodies to solicit the opinions of MOFCOM in formulating policies, especially trade-related policies. Why does the State Council set forth this task at this time juncture and what specific measures has MOFCOM taken? Thank you.

Shen Danyang: In recent years, China and Latin American countries have expanded trade and economic cooperation with increasing converging interests and new areas for growth. The scale of commercial exchanges is rising continuously and a new partnership featuring interdependence and joint development has taken shape. There are a lot of data to illustrate this trend and I will briefly mention some of them. Trade flows between the sides are expanding rapidly with rising importance to each other. Two-way trade in 2013 was almost 21 times that of 2000. In 2000, two-way trade exceeded USD 10 billion for the first time, which only accounted for 2.7% of China’s total foreign trade. In 2013, it took up 6.3% of China’s total trade with other economies. In 2012, it represented 11.9% of Latin America’s total foreign trade, which was a significant increase from 1.7% in 2000. In 2013, China was Latin America’s third largest trading partner only after the US and EU and Latin America stood as China’s seventh largest. In the first half of 2014, two-way trade continued to grow. China’s imports from Latin America saw exceptional growth, expanding by 15.2% in the first four months of the year.

In terms of investment, China’s investment in Latin America is rising quickly and becoming more diversified. In 2005, China’s cumulative direct investment in Latin America exceeded US10 billion for the first time and reached USD 68.2 billion in 2012, accounting of 12.8% of China’s outbound investment that year. Last year, China’s direct investment in Latin America reached USD 15.16 billion, up by 42.9% year on year--- an extraordinary rate of growth. In the first half of this year, China’s direct investment in the region saw a slight decline, moderating to 2.2%, but it still amounted to USD 9.06 billion. Its areas of investment has extended from agriculture and mining to manufacturing, power generation, agriculture and finance and its forms of investment have been increasingly diversified. Besides, project contracting and labor services cooperation are also expanding.

Shen Danyang: China and Latin American countries have a broad prospect in economic cooperation going forward, mainly in three areas.

First, scale up trade. At the moment, non-traditional merchandise from Latin American countries, like aircrafts, meat, wine, and dairy products, and mechanic and electronic products from China have entered each other’s market. But overall, two-way trade flows are still mainly on traditional goods. Going forward, the two sides will work together to encourage trade on hi-tech goods and other high value-added goods, enhance the level of products and achieve balanced trade development.

Second, expand investment cooperation. We encourage Chinese companies to invest in Latin American countries and welcome Latin American businesses to invest in China.

Third, diversify areas of cooperation. There is broad space for further cooperation on investment and trade. We will explore the exchange and cooperation on strategic emerging sectors such as new energy sources, new materials, energy conservation, environmental protection, green economy, innovation in the bio-industry, and advanced manufacturing. For example, Latin American countries are committed to promoting a low-carbon economy while China has relatively mature technology in the solar and photovoltaic industry and large complete sets of equipment, hence many business opportunities and broad room for cooperation in this area.

On the Circular Regarding the Further Strengthening of Trade Policy Compliance issued by the General Office of the State Council, trade policy compliance is a specific measure China has adopted to speed up the building of a new open economic system. The Circular of the General Office of the State Council points out that trade policies formulated by all departments of the State Council, the people’s governments at all local levels and the departments thereof should comply with WTO rules. In another word, the government should act according to rules. This has demonstrated the resolve of this new government to deepen reform and expand opening up. Compared with the situation before China’s accession to the WTO, the current situation we are facing both at home and abroad has undergone major changes. On the domestic front, the Decision of the 18th CPC Central Committee requires the market to play a decisive role in resource allocation. On the international front, our country has become the world’s largest merchandise trader and second largest economy, our economy has been highly integrated into the world economy, and we are already the largest trading partner for over 120 countries. Therefore, China’s trade policies are no longer our own affairs. Each trade policy we adopt may become a concrete factor that affects the operation of the world economic and trading system. We must make better use of rules to promote the orderly, free flow of factors, the efficient allocation of resources and the deep integration of markets. Therefore, it is very necessary, timely and meaningful for the General Office of the State Council to publish this Circular at this juncture. Governments at all levels should regulate their own behavior more proactively according to this Circular, operate according to market-based and current international rules, and strive to create a policy environment conducive to China’s economic transformation and upgrading. The Ministry of Commerce, according to the requirement of the Circular, will proceed to ensure a good implementation of the Circular through efforts such as policy interpretation, policy advocacy, training, and formulating implementation rules.

Phoenix TV: My question concerns China’s outward direct investment (ODI). China’s ODI declined by 5% year on year in the first half of this year. This is rather a contrast to our impression that China’s ODI has already been soaring. Please help us analyze the reasons. Furthermore, we have noted that ODI to the EU and Russia has increased by a big margin. Would you please explain the causes behind such a phenomenon? Thank you.

Shen Danyang: Since the beginning of the year, the growth of China’s ODI has slowed down. Such a slowdown is a result of the trend factor, as well as a combination of multiple technical factors. What is a trend factor? China’s ODI over the past ten years has been growing very rapidly. In 2002, China’s non-financial outward investment was only 2.7 billion US dollars. In 2013, it rose to 90.2 billion US dollars, registering a 33-fold increase in a short span of 12 years. Today Chinese investment is well-received in countries across the world. With such a good market driving force, a strong desire on the part of the businesses to go global, a receptive environment in the destination country and the important factor of policy guidance and support, the long-term prospect of ODI growth should be positive. Furthermore, many believe that compared with inward FDI, ODI may grow faster. Based on such a trend or from such a perspective, it is only a matter of time that China’s ODI will surpass the size of the FDI it attracts. However, why was there a slowdown in ODI growth in the first half of this year? As far as the trend is concerned, the main reason is that China’s ODI is inevitably subject to the fluctuations in the global economy, to the ups and downs of international capital flows, and to the rise in investment protectionism around the world. Of course, our own structural adjustment to outward investment might have also exerted some impact on the growth of ODI. Therefore, it will be just a normal correction if there is some slight slowdown in China’s ODI growth in the future. This is the trend factor.

Shen Danyang: If we analyze the situation from a technical or other short-term factor perspective, then four factors can be held accountable for the negative growth in this year’s ODI:

First, the base factor. In February last year, CNOOC acquired Canada’s Nexen Company for 14.8 billion US dollars, which was a very large project. No delivery of such a large project took place in the first half of this year. Therefore, if we exclude the Nexen project from last year’s figure, then the ODI in the first five months of this year will be 58% more than that of the same period last year. Things might be different if a large project takes place in the second half of the year. So this is the impact of the base factor.

Second, macro-economic factors. Economic slowdown, lack of liquidity and rising financing costs are all factors that to some extent weaken a company’s ability to make outward investment.

Third, fluctuations in foreign exchange. In the first half of this year, the two-way fluctuation of the Renminbi intensified, changing the market expectation of a long-term appreciation of the Renminbi. This has brought fluctuations to the returns on investment of the businesses. Some of them slowed down their pace of outward investment.

Fourth, price factors in international market. Energy and mining are one of the main sectors to which China’s ODI goes. As commodity price dropped in the international market, Chinese businesses’ enthusiasm for investing in the overseas energy sector waned. In the first half of this year, Chinese enterprises’ investment in mining dropped by 46.3% year on year.

Does the figure of the first half of this year mean that investment in the whole year will drop? We do not think so. We expect that as reform measures conducive to enterprises’ outward investment are introduced (we have published many policy measures to streamline outward investment procedures lately), as the economy stabilizes and picks up, and as some large cross-border merger and acquisition projects are delivered, it is likely that this year’s ODI will achieve a growth of around 10%.

International Business Daily: I have two questions. First, on implementing the Opinions Regarding Support for the Stable Growth of Foreign Trade of the State Council. What efforts has the Ministry of Commerce made so far? What are the supporting measures going forward? Second, on the 12th round of China-Korea FTA negotiations. Could you update us on the latest progress?

Shen Danyan: This document of the State Council has been out for over two months. Over the past two months, the Ministry of Commerce has done lots of work. The CPC Leadership Group of the Ministry attaches great importance to it, and makes a great effort to implement it. So far, five trade facilitation measures have been promulgated, easing substantially the burden on businesses. Many aspects of the document involve not only the portfolio of the Ministry of Commerce, but those of other State Council departments. The Ministry of Commerce’s role in this is to coordinate and support the implementation efforts. As far of the Ministry of Commerce’s own work is concerned, measures in the following five areas have been adopted:

First, we have further reduced the number of product categories that require automatic licensing. We jointly published an announcement with the General Administration of Customs that from 1 July onwards the automatic licensing requirement for the 81 tariff lines under the five categories of optical-disk production equipment, automotive products, engineering machinery, textile machinery and metal processing machine tools would be removed. The reduction was as high as 14%.

Second, we have delegated to lower level governments the power of examination and approval of the second extension (or more) concerning TRQ administration and agricultural processing trade.

Third, we have removed the fees for the Certificates of Origin for textile products. From 19 June, we terminated the collection of fees for the issuance of the Certificates of Origin for textile products. This item was the last paid licensing item at the Ministry of Commerce. With its elimination, all charged licensing items of the Ministry of Commerce have been eliminated.

Fourth, we have adjusted and reduced the fee for value-added services of processing trade network enterprises. This fee is collected by China International Electronic Commerce Center (CIECC), an administrative institution under the Ministry of Commerce. Thanks to the coordination by the Ministry, the CIECC confirmed that from 1 July it would lower the fee for its services. It would reduce the value-added service fees for the 25,000 processing trade network enterprises by 8% at the lowest and 75% at the highest. The average reduction is 30%. After such a service fee adjustment, the annual value-added service fee by member enterprises will be reduced by RMB 40 million yuan.

Fifth, we have reduced the booth fees for the export section of the 116th Canton Fair for Import and Export.

On China-Korea FTA negotiations. Yesterday, the 12th round of the China-Korea FTA was initiated in Daegu, Korea. This round was to implement the consensus of President Xi Jinping and the Korean leader when the former visited Korea recently. The consensus was to try to conclude the negotiations before the end of this year, and strive to reach a high quality and comprehensive FTA. In this round, the Ministry of Commerce will focus on how to implement the consensus of the two leaders, engage actively in consultations with the Korean side, endeavor to reach agreement on the work arrangement going forward, speed up the overall negotiation process, and find ways to conclude the talks within this year.

China News Service: We noticed that China’s FDI utilization has slowed down over the past two years. How will you predict China’s FDI utilization for the whole year and the years to come? Thank you.

Shen Danyang: FDI utilization in China has slowed down over the past two years. However, China’s FDI inflow has kept growing on the whole and its share in global FDI has been increasing. When the international financial crisis broke out in 2008, global cross-border FDI dropped by 9%, while FDI into China went up by 30%. In 2009, global cross-border FDI plummeted by 33%, while China witnessed merely 13% of FDI decline. Since 2010, China has maintained steady FDI inflow of over USD 110 billion. In 2013, despite more money flowing back to developed countries, FDI into China increased by 2.3% to USD 123.9 billion, which was 1.5 times the pre-crisis level. China’s share in global FDI expanded to 8%, compared to the pre-crisis 4% in 2007. Therefore, only by looking at both absolute and relative figures and making comparison from different angles can we see the trend clearly.

There have been some new developments in global cross-border FDI in recent years. For example, developed countries have seen fast growth of FDI inflow and slowdown of FDI outflow, accompanied by increasing investment withdrawal. Outward FDI of developing countries has climaxed and will soon come across the turning point. In cross-border acquisitions and mergers, North countries have retreated and South countries have become more aggressive. Asset ownership is changing, too. Echoing that trend, FDI utilization China has slowed down and China has also sped up structural optimization. In the years to come, China’s FDI utilization may enter into a phase featuring adjustment, differentiation, and slow but steady growth. Having said that, we are restructuring legal framework on foreign investment, improving investment climate and further facilitating foreign investment. Of course, in the period of adjustment, FDI will be differentiated. Some market-pursuing foreign investors will remain optimistic about China’s prospect of development and increase investment in China. As China opens wider to the outside world, more FDI will flow into services sector to grab business opportunities. On the contrary, as comprehensive cost in China goes up, export-oriented and manufacturing sectors will attract less FDI, with sharper decline in the former sector.

Shen Danyang: Foreign investors have boosted their confidence in China thanks to China’s comprehensive advantage over FDI utilization. One sign is that in the first half of this year, FDI inflow registered a positive growth for the first time since 2012. In the first half of this year, 10,973 new foreign-invested enterprises were set up in China, up by 3.2% year on year. This is partly due to the change from capital paid-in to capital subscription requirement in the national business registration system and the issuance of the Notice on Improving the Administration of Foreign Investment Approval by MOFCOM. Since the new measure was introduced, 8,209 new FIEs were set up between March and June, up by 6.4% year on year. It shows that further investment facilitation has beefed up foreign investors’ confidence in China. Combining all these factors, we believe that China’s FDI utilization and inflow will continue to grow steadily in 2014 with higher FDI utilization level and optimized FDI structure.

CCTV: The China-US BIT negotiation is ongoing. It is also a focal topic of this China-US Strategic and Economic Dialogue. Could you update us on its latest progress?

Shen Danyang: China-US BIT negotiation is one of our very important negotiations. The top leadership of both China and the United States pays much attention it, and requires us to make active progress. This negotiation is not only important to China and the US, but will have a positive and profound impact on the world as well. More importantly, it is closely associated with our current efforts to deepen reform and expand opening up. China’s position on this negotiation is very positive. China has done enormous work to push along the talks.

On progress, so far the two sides have had 13 rounds of negotiations. From 9 to 13 June this year, the 13th round was held in Beijing, and important progress was made. During the 6th China-US Strategic and Economic Dialogue, the two sides reached agreement on the work target of the negotiations going forward, which is that the two sides come to agreement before yearend on the core issues and main clauses of the text, and launch the negotiations on the negative list early next year. To explore an administrative model based on pre-establishment and negative list for foreign investment in China is a clear requirement of the Third Plenum of the 18th CPC Central Committee. It is conducive to building a new open economic system, further stimulating market vitality, and promoting economic system reform and transformation of government functions. Going forward we will follow the consensus of the leaders of China and the US, speed up the negotiation pace, strive for positive progress, and aim at concluding a balanced, high-level China-US BIT featuring common win at an early date.

Shen Danyang: Thank you. With that we conclude today’s press conference.

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