Chinese example of attracting investments: lessons for Ukraine

Author : Vyacheslav Lysenko

Source : 112 Ukraine

Over the past 24 years, Ukraine has got 43 billion 371 million dollars of direct foreign investments
16:45, 6 May 2016

Today, increased investment is a prerequisite for a gradual economic recovery of our country by creating a favorable investment climate in Ukraine. The development of the investment potential and reducing investment risks will create favorable conditions for improving the competitiveness of Ukraine's economy. It would lead to further expansion, development and change in the structure of production, renewal of fixed assets, improving the technological level of production and working conditions.

A good example is the experience of China. As a result of economic reforms, a relatively efficient system of taxation of foreign individuals and legal entities was established; it was flexible, and it provided benefits and simplification of tax procedures. A key element of modern China's foreign economic strategy is the creation of special economic zones and coastal cities opened to foreign investors. The success of China was in attracting foreign business generally associated with a favorable investment climate. The components of the favorable investment climate are labor, the right to a cheap land use, an acceptable level of industrial and social infrastructure in areas of economically prudent taxation, preferential immigration and customs mode, favorable currency and customs legislation.

Related: Ukrainian-Polish start-up Homsters attracted investment to launch in Vietnam

Since 1984, China actively carried out the policy of "open doors". In the 1990s China was the largest recipient of foreign direct investment (FDI) and it was second after the United States. In recent years, China firmly holds the leader among developing countries in terms of FDI. By the early 2000's. Foreign investment in China has reached more than 52 billion dollars. At that time, 400 of the 500 leading multinationals already have their businesses in China. Last year, foreign direct investment in the Chinese economy grew by 6.4% compared to the 2014 year, up to 126.3 billion dollars. In particular, in 2015 foreign investment in the services sector rapidly grew (17.3% - to 77.2 billion dollars) and in the technology industry (by 9.5% - to 9.4 billion dollars). Multinational companies, which are in the top 500 largest in the world, continue to establish new businesses in the country and invest additional costs. During 2015, the economy of Ukraine received 3.76 billion US dollars of foreign direct investment. One third of the funds were invested in manufacturing plants, a little less than a third - in financial institutions and insurance sector. Over the past 24 years until December 31, 2015, Ukraine has got 43 billion 371 million dollars foreign direct investments.

Related: EBRD plans to invest about 1 billion euros in Ukraine in 2016

An important prerequisite in the investment of China was the change of the government's attitude to investors. Career prospects of state officials were dependent on their ability to attract foreign investment.

Experience of the Chinese partners and other foreign countries indicates further steps to enhance investment in Ukraine:

  • conduct a balanced financial policy to stabilize the macroeconomic environment, which will help to create a favorable investment climate and overcoming obstacles to foreign investment;
  • simplify business taxation, reducing the tax burden and provide additional benefits to foreign investors to improve tax competitiveness of the domestic economy;
  • provide additional preferences to investors who invest financial resources in underdeveloped areas;
  • expand investment crediting agricultural enterprises to purchase new equipment and introducing energy-saving technologies.

Particular attention should be paid to the state regulation of financial provision of scientific and technological renewal of production of most large industrial enterprises of Ukraine, modernization of existing equipment in foreign direct investment, which will enter international markets, increase competitiveness and achieve a profitable level of operations. Most of foreign countries use a combination of direct budget funding and tax and depreciation benefits for the development of investment entities.

Related: Ukraine’s investment attractiveness improved in 2015

Related: Poroshenko in USA: Successful reforms will ensure US investment in Ukraine’s economy

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