./.WORLD TRADE
ORGANIZATIONWT/WGTI/W/159
15 April 2003
(03-2082)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CHINA
The following communication, dated 14 April 2003, has been received from the Permanent
Mission of the People's Republic of China.
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SCOPE AND DEFINITION
1. During the discussions in this Working Group's meetings held last year, China expressed its
preliminary views on various issues for clarification within the context of Paragraph 22 of the Doha
Ministerial Declaration.  In addition to the detailed views on the issue related to the investors’ and
home governments’ obligations as contained in the paper jointly submitted by several other
developing Members and China on 18 November  2002 (WT/WGTI/W/152), China would like to
further elaborate its views and positions on some other issues as its contributions to the work of the
Working Group.  These views and positions, along with those it already expressed at the previous
meetings, will form the basis of China's stand for possible discussions that may take place in the
future on the modalities of negotiations for any possible multilateral framework on investment (MFI).
2. In formulating its positions, China bears in mind the following basic spirit and principles as
laid down in the Ministerial Declaration:  Any MFI to be developed in the future "should reflect in a
balanced manner the interests of home and host countries, and take due account of the developmentpolicies and objectives of host governments as well as their right to regulate in the public interest.
The special development, trade and financial needs of developing and least developed countries
should be taken into account as an integral part of any framework, which should enable Members to
undertake obligations and commitments commensurate with their individual needs and circumstances.
Due regard should be paid to other relevant WTO provisions.  Account should be taken, asappropriate, of existing bilateral and regional arrangements on investment."
3. Judging from China’s experience with reform, opening-up and absorbing foreign investment
in the past two decades, foreign direct investment  (FDI) has on the whole played a positive role in
China’s economic development.  To further open up and improve its environment of investment is the
principal aspect of China’s foreign investment po licy.  China is of the view that FDI should be
provided with rational and effective protection.  Scope and definition in the context of a possible
multilateral framework on investment should facilitate developing Members to attract FDI effectively
and avoid financial risks.
4. Definition of investment within the context of a MFI should be strictly in line with the spirit
of the Doha Ministerial Declaration, with a view to securing transparent, stable and predictableconditions for long term cross-border investment.  Investment to be defined for such a framework
should help trade promotion and the economic development of the host countries, particularly theWT/WGTI/W/159
Page 2
developing countries.  It should also facilitate striking a balance of interests between the home and
host countries.
5. Forms and structure of international capital flows have been under continuous transformation.
Within the overall conception of cross-border investment, foreign portfolio investment (FPI) has been
progressively on expansion in proportion in recent years and has also contributed, to some extent, tothe world economic growth and development.  It  must be recognized, however, that FPI embodies
much more complicated economic elements and activities than FDI and that there are large gaps
among Members in the maturity of and capacities of supervision over and regulation of their
respective capital markets.  FPI, particularly the short-term capital flows of a speculative nature,
imposes substantial potential threats and risks to the national economies for those Members with less
mature capital markets and less effective supervision and regulation capacities.  Many regional
financial crises in history, including those happened in late 1990s, have proved this conclusion.  Forthis reason, it is obviously inappropriate to incorp orate FPI in the definition of investment for a MFI
given the fact that conditions are yet to be matured in many Members, particularly many developing
Members, at present and in the foreseeable future.  It is China’s belief that definition in a MFI to be
possibly negotiated within the WTO should be limited to FDI, while FPI, including capital flows of a
speculative nature, and debt as well as loans should be excluded.
6. Last but not least, the Working Group on the Relationship between Trade and Investment
should continue its study and clarifications on how to deal in an appropriate manner the issue of scope
and definition in the existing bilateral and regional investment arrangements and their relationship
with that in a possible future MFI within the WTO.  Further detailed discussions and clarifications on
all relevant elements relating to the issue of definition for such a framework per se  are also necessary.
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