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Eden Building to Stock Exchange

Published: 12:34 AM, 19 May 2019

Bangladesh can learn strategy of FDI from China


M S Siddiqui

The foreign direct investment (FDI) is considered as one of the major sources of employment
generation, technology transfer, and managerial capacity building, and increasing market
efficiency in any country.FDI may become a very rapid and effective engine to promote the
transfer of technology, know-how and new business practices, helping to raise productivity and
setting a country on the course of convergence.

But the policy and actions of regulating authorities are frustrating for overseas investors.
Bangladesh still asked for many documents for registration of FDI or Joint venture project as per
web-site of BIDA.

Those are (1) two copies of application in prescribed form duly filled in, (2) Certificate of
Incorporation along with Memorandum & Articles of Association in case of Public/ Private
Limited Company, (3) in case of Joint Venture Project (JV), two copies of Joint Venture
Agreement duly signed in by both the parties, (4) two attested copies of deeds of the proposed
land (if the land is owned by the entrepreneur, then attach copies of original deed, or copy of
loan agreement for rented building), (5) if the total project cost exceeds Tk. 50 (fifty) million, two
copies of Project Profile, (6) background of the Promoters in official letterhead pad describing a)
Name, b) permanent address, c) mailing Address, d) position and e) Nationality (7 (seven)
copies), (8) list of machinery indicating quantity and price (7 (seven) copies), (9) in case the
project is financed by loan, copy of relevant documents in support of loan 2 (two) copies], (10) a
pay order/bank draft applicable of registration fee in favour of "Executive Chairman and
Member-Secretary, Board of Investment".

Bangladesh encourages FDI with information that Bangladeshi products enjoy duty free and
quota free access to almost all the developed countries. This access to the global market is
further helped by the fact that the policy regime of Bangladesh for foreign direct investment is by
far the best in South Asia. Most Bangladeshi products enjoy complete duty and quota free
access to EU, Canada, Australia and Norway.

Bangladesh is not a competitor of China in FDI market but it can learn from China how to attract
FDI. On 28 June, 2018, the Chinese National Development and Reform Commission (NDRC)
and the Ministry of Commerce (MOFCOM) of the People's Republic of China (PRC) jointly
issued the Special Administrative Measures on Access to Foreign Investment (the "Negative
List").The Negative List is a list of industries in which foreign investment is either prohibited or
restricted. The Free Trade Zone Negative List follows the same logic, but is less restrictive than
the national list and only applies to China's free trade zones.

The 2018 Negative List was released when it comes to the 40th anniversary of China's
economic reform and liberalization, and is generally understood as demonstrating China's
continued willingness to gradually open up its market to foreign investors.

Notwithstanding, the Chinese government's intention to open up more areas of investment for
foreign investors. A non-exclusive list of such areas include: (i) technology relating to human
stem cells and genetic diagnosis and therapy, (ii) online news and information services, online
publishing services, online audiovisual program services, online operational cultural products
and activities (other than music), and online information dissemination services (only permitted
to the extent promulgated under China's WTO commitments), and (iii) value-added
telecommunication business, except for e-commerce (subject to foreign shareholding
limitations). We will continue to monitor any further developments in this regard and provide
updates as appropriate.

The 2018 Negative List has immediately relax or remove restrictions on foreign investment in
the agriculture, mining, and infrastructure sectors. The finance, insurance, and automobile
sectors, meanwhile, will experience more gradual reform, due to the incremental liberalizations
effected by the timetable included in the Negative List.

China has removed restrictions on foreign shareholding in the banking industry. It relax the
foreign shareholding ratio in securities, fund management, futures and life insurance companies
up to51%. It has opened up infrastructure and removed restrictions on railway network and
power grid.

China has announced to remove restrictions on foreign shareholding ratio insecurities and fund
management companies by 2021 and to remove restrictions on foreign shareholding ratio in
futures companies by 2021. It has also announced to remove restrictions on foreign
shareholding ratio in insurance companies by 2021.

It has removed restrictions on railway passenger transportation and international shipping and
international shipping agency and announced to remove restrictions on manufacturing of
commercial vehicles by 2020, and also to remove restrictions on foreign shareholding in
manufacturing of passenger vehicles and a single foreign investor can be allowed to set up two
joint ventures or more in China by 2022.

The trade has been opened up with removed restrictions on gas station, procurement and
wholesale of grain. China has removed restrictions on business premises for internet access
services. In automobile sector already removed restrictions on manufacturing of special purpose
motor vehicles and new-energy vehicles.
The service sector has been opened and removed restrictions on vessel design, manufacture
and repair and removed restrictions on design, manufacture and repair ofaircrafts used for trunk
lines/regional lines, general purpose aircrafts, helicopters, unmanned aerial vehicles and
aerostat, etc.

In agricultural sector removed restriction on manufacturing of crop seeds exceptfor wheat and
corn. In the mining sector it has removed restrictions on mining of special rare coals. It has
removed restrictions on graphite exploitation, rare earth smelting separation and tungsten
smelting.

Moreover, for industries not included in the Negative List, foreign investors are given equal
treatment to domestic Chinese investments, save for record-filing requirements. Restricted
industries are usually only accessible to foreign investors through joint venture structures with
Chinese companies or are restricted through shareholding limits. In other cases, foreign
investors might need prior approval from MOFCOM to invest in a restricted industry.

China has disclosed 22 Provisional Measures intended simplify the formalities to set up foreign
investment companies. According to these provisional measures, from 30 June 2018, a foreign
investor can set up a company by completing a single form and submitting it electronically to a
public department, provided the investment sector is not listed in the 2018 Negative List.

This means that a foreign investor does not need to comply separately with procedures with
MOFCOM and SAIC (State Administration for Industry and Commerce), which previously made
it necessary to complete the same information in duplicate.

In addition, the Chinese authorities are spreading the word that the new process will be carried
out "paperless, cost-free and without the need to be present". This new reform thus aims to
improve the efficiency of the service and simplify the procedure for setting up and registering
companies, thereby reducing the burdens and costs of these procedures for foreign investors.

With the enactment of these alterations, the Chinese Government has put into effect its long
announced intention to open up its market gradually to foreign investment. This may be an
interesting moment for foreign companies to ponder the feasibility of these measures in
potential investments in China in their area of business.

FDI in Bangladesh has been increased by 1706 USD Million in 2017. Foreign Direct Investment
in Bangladesh averaged 958.13 USD Million from 2002 until 2017, reaching an all-time high of
1726 USD Million in 2013 and a record low of 276 USD Million in 2004. Bangladesh allowed
outbound FDI with some strict restriction making the investment impossible.

While China saw its strongest annual growth of outbound foreign direct investment (ODI) in
2016 as its non-financial ODI flows surged by 49.3% to USD 181.2 billion. Moreover the ODI
excluded financial sector significantly outpaced inbound foreign direct investment (FDI) in 2016,
which amounted to USD 123.4 billion in 2016.
The poor investment data revealed that we have many things to learn from China.A simplified
registration policy instead of approval and future visionary policy can attract more FDI. China is
emerging global leader but opened its infrastructure, service, transport and mining sector for
FDI and does not impose restriction on 'security reason or national interest'.

There is no reason why Bangladesh will continue keep these sector restricted for public
investment with overseas loan against high interest rate. The relevant government departments
are proven to be most corrupt and inefficient. Thecost of construction is reportedly highest in the
world as revealed by different study and comparison with other countries. These sectors may be
opened for FDI following the policy of China.

The writer is a Legal Economist