China has authorized its provinces to approve foreign direct investment (FDI) proposals worth up to US$100 million.

The Ministry of Commerce (MoC) on Thursday asked all relevant ministries at the provincial level to approve such projects in a bid to step up the inflow of foreign capital in the face of a worsening financial crisis. The arrangement comes into effect immediately.

Earlier, all FDI proposals, irrespective of size, had to be ratified by the MoC. Now, these would be processed at the provincial level and would only have to be reported to the Ministry for record keeping, a statement on the ministry's website noted.

The new policy is widely expected to shorten the time taken for an FDI application to be approved. More important, foreign entrepreneurs said, it would help cut down on the tedious paper work that was needed to get the proposals approved by different layers of the bureaucracy.

"We welcome the policy as it relaxes and decentralizes the regulation of foreign investment activity in China and provides a level playing field for all businesses," a spokesperson for the European Union Chamber of Commerce in China told China Daily. "This is a strong encouragement to potential foreign investors."

An executive at US retail giant Wal-Mart agreed. "The news has been in the air for a few months, but we did not expect it to happen so soon," he said, adding the move would open the door to many more potential foreign investors, especially smaller enterprises which were discouraged by the time consuming and complicated processes of the past.

The average FDI investment in a project amounted to about $5 million, past records showed. This indicates that the majority of new applications can be handled at the provincial level.

FDI has fallen for four consecutive months. From October to January, the FDI inflow decreased by 0.8 percent, 36.5 percent, 5.7 percent and 32.6 percent, respectively, year-on-year.

Economists and other industry experts said they expect the recessionary trend to continue through 2009. The concern has been magnified by the downturn in exports. This has created greater urgency to push investment as the main engine of economic growth, which is targeted at 8 percent this year.

China's monthly exports have been declining since November last year. In February, the nation's exports witnessed the largest decline of the past decade, at 25.7 percent year-on-year,.

The National Bureau of Statistics said on Wednesday that fixed asset investment (FAI) in China's urban areas grew by 26.5 percent in January and February, but the growth was mainly driven by the infrastructure projects initiated by the government's stimulus plan, and not from foreign companies, which grew by just 2.1 percent year-on-year.

Although the decentralized approval system is widely expected to help attract more foreign investment into the country, it has raised fresh doubts in the minds of some foreign investors.

"We wish there would be greater transparency in the approval processes at the local government level," said the European Union Chamber of Commerce in China.

(China Daily March 13, 2009)