The article analyzes China's strategy for attracting foreign direct investment( FDI), using the strategy concept based on the strategy map model of R. Kaplan and D. Norton. The favorable investment climate is considered as the driving force of FDI inflows and the core of the strategy. To assess the degree of achievement of strategic goals, a number of indicators calculated by international organizations and consulting companies are used. The composite index of favorable investment climate in China is calculated on the basis of these indicators. This index was 8.02 on a ten-point scale. Such components as the size of the domestic market, an attractive ratio of labor qualifications and labor costs, and a wide geographical protection of FDI through bilateral investment agreements made a decisive contribution to the high favorability of the investment climate.

Keywords: FDI inflows (foreign direct investment), strategy, investment climate, strategic goals, key indicators.

CHINA: FOREIGN DIRECT INVESTMENT ATTRACTING STRATEGY

In the article China s strategy for attracting foreign direct investment (FDI) is analyzed. The author uses the concept of strategy, based on the model of strategy map by Robert Kaplan and David Norton. Favorable investment climate is considered as a driving force of FDI inflows and the core of strategy. To evaluate the achievement of strategic objectives a number of indicators produced by international organizations and consulting companies was chosen. Composite index of favor ability of investment climate in China is calculated on the base of indicators in question. This index is 8.02 out of 10. Such components as the size of the domestic market, an attractive balance of work force skills and costs for wages, a wide geography of FDI protection through bilateral investment agreements made a decisive contribution to the highly favorable investment climate.

Keywords: FDI, strategy, investment climate, strategic objectives, key performance indicators.

Vitaly G. KANDALINTSEV, PhD in Economics, Senior Researcher at the Institute of Oriental Studies of the Russian Academy of Sciences, e-mail: blisvet2011@yandex.ru.

Vitaly KANDALINTSEV, PhD (Economy), Senior Research Fellow, Institute of Oriental Studies, RAS, Moscow.

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There are only a few countries in Asia that attract tens of billions of dollars of FDI annually. China is a leader in this indicator not only among them, but also in the world. In 2014, FDI inflows to China totaled $ 128.5 billion. Therefore, the study of the country's strategy for attracting foreign capital is relevant both in scientific and practical terms.

The proposed article uses the concept of strategy, which is revealed on the strategy map in the form of a tree of goals and chains of causal relationships connecting goals; the map is divided into four components or perspectives. Initially, this approach to strategy analysis was developed by American specialists Robert Kaplan and David Norton for use in strategic management of organizations, i.e. at the micro level. Subsequently, their methodology was also applied at the meso-and macro-level.

The core of the strategy is the favorable investment climate, understood in a broad sense - as a set of market characteristics and factors of production, relationships with investors, risks and the image of the country. Improving the favorable investment climate increases the inflow of FDI to the country, i.e. it allows achieving the ultimate goal of the strategy.

In order for the investment climate to be more favorable, it is necessary that the processes of improving this climate work effectively. Improvement processes either increase the favorability of individual climate components or stabilize them at a competitive level. Finally, the effectiveness of the processes of improving the investment climate in the long term is determined by the level of the development base, which is formed by a complex of three capitals of society: human, informational and institutional.

It should be taken into account that the strategy in the context of this article is understood as an objective mechanism that ensures attracting FDI to the country. Today, China has a fairly effective mechanism of this kind, but the situation may change in the future. These problems are discussed in the article.

STRATEGY MAP

The strategy of attracting investment characterizes the general logic, according to which the recipient country seeks to create a favorable investment climate and increase the inflow of FDI. The strategy can be visualized using such a popular tool as the strategy map [Kaplan and Norton, 2008, p. 99].

Figure 1 shows a map model of the strategy for attracting FDI, compiled taking into account the specifics of the issues under consideration. The strategy map consists of four components, in which strategic goals are indicated by rectangles. The arrows reflect causal relationships between strategic goals. These relationships are probabilistic in nature.

The core of the strategy is to offer investors a favorable investment climate. It is the improvement of the investment climate that leads to an increase in FDI inflows to the country through the emergence of new investors and an increase in the value of investors (i.e., an increase in the volume of investments per investor).

The investment climate is defined by four components::

- characteristics of the market and factors of production (the size of sales markets and the development of financial markets, the qualification of labor resources and the level of labor costs, the development of infrastructure);

- investor relations (openness of the economy, investment protection, investment incentives);

- risks (level of political and other risks);

- the country's image (the prevailing perception of the country as a recipient of FDI).

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Figure 1

Map of the strategy for attracting FDI

Source: compiled by the author based on the model of Robert Kaplan and David Norton.

The favorable investment climate reflects the current situation in this area and is somewhat static. In order for dynamics to appear (i.e., for the climate to improve), it is necessary to improve the investment climate. Each component of the investment climate corresponds to its own group of improvement processes:

- a group of processes that form the characteristics of the market and factors of production (growth of effective demand, development of the financial system, educational process, including professional training and retraining of personnel, infrastructure development);

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- group of investor relations management processes (increasing the openness of the economy, improving investment protection, improving the investment promotion package);

- risk mitigation process group (resolving political and other issues);

- a group of processes for improving the country's image (developing communications to inform potential investors about the benefits of investing in the country).

Finally, the quality of processes and opportunities for improvement depend on the country's current development framework. This framework includes human capital (the level of education, knowledge, skills, talent and competencies of the population), information capital (the capabilities of information technologies) and institutional capital (the administrative and legal environment and the system of values and behaviors that manifest in the field of economic activity).

KEY INDICATORS

Key indicators are needed to assess the degree of achievement of strategic goals. As such, indicators of international ratings and data from some other sources are used here (see Table 1).

Table 1

Applicable key indicators

Strategic goal

Key indicator

Data source for the indicator

Investment

FDI inflows

Inflow volume

UNCTAD. World Investment Report

The emergence of new investors

Growth in the number of FDI projects

FDI intelligence

Increasing the value of investors

Average volume of FDI per project

FDI intelligence

Investment climate

Size of sales markets

Market size

WEF Global Competiveness Report

Financial market development

Financial market development

WEF Global Competiveness Report

Workforce qualification

Index of qualified specialists

The Hays Global Skills Index

Labor costs

Average salary

PWC Global wage projections to 2030

Infrastructure

Infrastructure development

WEF Global Competiveness Report

Openness of the economy

Index of regulatory restrictions on FDI

OECD FDI Regulatory RestrictivenessIndex

Investment protection

Number of bilateral investment agreements

Official government websites

Incentive policy

Indicator of incentive activity

Officially announced tax and other benefits for FDI

Risks

Regional Political Risk Index

The PRS Group Regional Political Risk Index

Country's image as a recipient of FDI

Investment Confidence Index

A.T. Kearney FDI Confidence Index

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Table 1 (end)

Strategic goal

Key indicator

Data source for the indicator

Processes

Economic growth

GDP growth rate

World Bank statistics

Development of the labor market

Change in the index of qualified specialists

The Hays Global Skills Index

Creating infrastructure items

Changing the Infrastructure Development Index

WEF Global Competiveness Report

Reducing restrictions on FDI

Changing the Regulatory Restrictions index

OECD FDI Regulatory Restrictiveness Index

Improving the protection of FDI

Number of bilateral investment agreements that have entered into force in recent years

Official government
websites

Strengthening incentives

Changing incentive parameters

Dynamics of officially announced tax and other benefits for FDI

Risk reduction

Changing your regional address

The PRS Group Regional Political

political risk index

Risk Index

Improving your image

Change in the investment confidence index

A.T. Kearney FDI Confidence Index

Development

Human capital

Human Capital Index

WEF Human Capital Report

Information capital

Network Readiness Index

WEF Global IT Report

Institutional capital

Quality of institutions

WEF Global Competiveness Report

Source: compiled by the author.

These indicators mainly allow us to assess the actual strategy of attracting FDI. This evaluation can start with the core of the strategy.

CORE OF THE STRATEGY: INVESTMENT CLIMATE

Market and factors of production. The size of the market is by far the strongest component of China's investment climate in this area. In the Global Competitiveness Index 2015-2016. China ranks first in terms of market size with the highest possible score, 7 on a seven-point scale. The development of the financial market is rated significantly lower - 4.1 points and 54th place [Global Competitiveness..., 2015, p. 140].

The country's labor force is quite skilled. This can be judged by The Hays Global Skills Index. The general index of the People's Republic of China, which includes 7 private indicators, was 4.7 points in 2015. The scale of this index is ten points, with 0 being the best result. According to the rating compilers, the value of the overall indicator of less than 5 points generally indicates a favorable situation in the labor market. Among private indicators, China has a high assessment of the flexibility of education (1.2 points) and the participation of specialists in the economy

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(2.8 points). This indicates the quality of training of specialists and a sufficient reserve of personnel. In addition, with a significant overall increase in salaries, which occurs when there is a shortage of specialists (7.5 points), such growth in industries that use highly qualified labor and in highly qualified occupations is noticeably lower (3.8 and 5.0 points, respectively). Consequently, the country's economy has quite a large number of highly qualified personnel [Labor Markets..., 2015, p. 25].

According to the average monthly salary reported by PricewaterhouseCoopers (PwC), China still had an attractive salary level of $ 523 in 2011. For comparison: in Russia, this level was $ 1,056, in South Korea - $ 2,361. PwC predicts that the relative wage gap in China will narrow in comparison with other countries in 2030. In China, this level will be $ 2,057 (in Russia - $ 2,815, in South Korea - $ 5,040) [Global Wage..., 2013, p. 5-6].

According to the Global Competitiveness Index 2015-2016, China's infrastructure development is rated at 4.7 points on a seven-point scale (39th place in the world). This is lower than the general index of global competitiveness of the country, which was estimated at 4.9 points (28th place in the world) [Global Competitiveness..., 2015, p. 140].

Based on the above data, we can say that China's actual strategy of attracting FDI in the "market and factors of production" direction is mainly based on leadership in the size of the domestic market and an attractive price/quality ratio of labor resources. However, in the future, the effectiveness of the strategy in this area will need to be supported through the development of financial markets that expand the opportunities for FDI through the use of local credit resources, as well as accelerated infrastructure development that reduces circulation costs and increases the diversity and stability of economic ties. Of course, building up innovation potential will be another factor in improving the investment climate, and this is very important in the long term.

Relationships with investors. The openness of the economy, which is expressed in the availability of various industries and sectors for foreign investment, significantly affects the investment climate. The PRC uses a directory-a guide of industries for foreign investment, which distinguishes the economy into encouraged, restricted and prohibited activities. The openness of the economy as a whole can be judged by the OECD index of regulatory restrictions on FDI. This index evaluates four main types of restrictions: restrictions on equity participation, screening or pre-approval procedures for FDI, restrictions on hiring foreigners as key personnel, and operational restrictions such as branch openings, capital withdrawals, or land ownership. According to the index, China has a high level of regulatory restrictions - 0.42 (0 means no restrictions at all) [FDI Regulatory..., 2015].

Investment protection is regulated by national legislation, but bilateral investment agreements (bits) play a significant role in the practice of protecting FDI. The PRC has concluded more than 100 bits, which indicates a wide geography of investors whose rights are protected by this method of legal protection. China has also concluded 27 bilateral agreements on the recognition and enforcement of foreign court decisions [Investment Climate..., 2015, p. 19]. Such agreements increase the degree of security of their investments in the eyes of foreign investors. The degree of protection of FDI can be assessed using a simple indicator that gives 1 point each

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for every 10 bits, but no more than 10 points in total. In this case, China will get a maximum score of 10 points.

Many regions of the country, including special economic zones, development zones, and science parks, have incentive packages designed to attract foreign investors. These incentives include reducing income taxes, fees for the use of resources and land plots, import and export duties, as well as prioritizing the provision of basic infrastructure services, rational coordination with government agencies, and providing funding to startups. At the same time, these packages may include requirements for export, the content of local components in products, technology transfer, or other requirements [Investment Climate..., 2015, p. 20]. Taking this into account, the activity of stimulating incoming FDI in China can be assessed as quite competitive, 7 points on a conditional ten-point scale.

In general, the investment climate in the investor relations area is relatively balanced. The relatively high degree of regulatory restrictions on FDI is explained by the specifics of the Chinese economic model, in which the market is often understood as a tool for implementing the plan. However, the increased protection of FDI combined with the active promotion of them allows maintaining the interest of foreign investors.

Risks. The Political Risk Index calculated by The PRS Group covers 17 categories of risks related to the political, financial and economic spheres. The index scale is 100-point. The higher the total political risk, the lower the number of points given to the country. China received a score of 70 as of April 2015, which corresponds to a slightly higher-than-average risk rating. In the East Asia-Pacific region, Indonesia (69 points) and Vietnam (68 points)have a higher political risk and Myanmar (64 points) [Group Regional...].

Image of the country as a recipient of FDI. The Investment Confidence Index, calculated by A. T. Kearney, is based on surveys of CEOs of leading companies in the world and aims to determine the probability of future FDI to the respective countries for a period of 1 to 3 years. The scale of the index is three - point-from 0 to 3. The higher the confidence, the closer the score in points is to 3. This index can also be used, with a known approximation, as an indicator of the image of the recipient country of FDI, i.e. it is assumed that the higher the place of a particular country in the investment confidence index, the better the image of this country countries as recipients of FDI. In the 2015 Investment confidence index, China ranked second with a score of 2.00 points, slightly behind the United States (2.10 points) [FDI Confidence..., 2015, p. 1]. This result shows that China has a good image in the eyes of investors.

Assessment of the investment climate in general. The investment climate as a whole is formed by the combination of all four areas discussed above. China has a highly favorable investment climate. Business surveys show that the greatest constraints on FDI inflows to certain countries are insufficient market capacity, weak infrastructure, lack of qualified personnel, lack of financing for investment from local sources, political risk and macroeconomic instability [World Investment..., 2014, p. 7]. According to this set of parameters, the PRC has either a leading position in the world (market size), or very good and improving average and above average positions.

Table 2 shows the calculation of the overall index of favorable investment climate in China. In the calculation, heterogeneous indicators are brought to a comparable form. The index reaches 8 points on a ten-point scale, which confirms the conclusion that the investment climate is highly favorable.

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Table 2

Investment Climate Favorability Index, 2015

Points (0-10)

Weight

Points based on weight

Favorable investment climate

1.00

8.02

market size

10.0

0.20

2.00

financial market development

5.9

0.05

0.29

workforce qualification

5.3

0.05

0.27

labor costs

9.0

0.05

0.45

infrastructure

6.7

0.05

0.34

openness of the economy

5.8

0.10

0.58

investment protection

10.0

0.10

1.00

incentive policy

7.0

0.10

0.70

risks

7.0

0.20

1.40

image of the country

6.7

0.15

1.00

Source: calculated by the author on the basis of translating these sources into a ten-point scale with an accuracy of 0.1 points according to the indicators indicated in Table 1.

As can be seen from the data in Table 2, the reserves for further improvement of the investment climate include indicators with a score of less than 6 points: an increase in the qualification of the labor force, an increase in the openness of the economy, and the development of the financial market.

FOREIGN DIRECT INVESTMENT INFLOWS

The investment climate, as a combination of the most important factors influencing the decision-making of foreign investors, has a direct impact on the inflow of FDI to the country. Data on FDI inflows to China over the past six years indicate significant and growing inflows (see Table 3).

Table 3

FDI inflows to China (USD million)

2009

2010

2011

2012

2013

2014

Inflow

95 000

114 734

123 985

121 080

123 911

128 500

Cross-border mergers and acquisitions, net sales

11 017

6 758

11 501

9 524

26 404

52 415

Scope of new projects announced

109 145

96 010

105 106

78 547

75 740

77411

Источник: [World Investment Report 2015: Reforming International Investment Governance. UNCTAD, 2015, annex tables 1, 3, 6].

At the same time, there are important changes in the structure of FDI inflows. First, in 2013-2014, there was a clear growth trend in the share of mergers and acquisitions. This trend continued in the first half of 2015, and according to Wang Shouwen, Deputy Minister of Commerce of the People's Republic of China, investment in the purchase of enterprises will be the main source of FDI inflows to China in the future. It can be noted that this trend

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It is consistent with global practice, in which mergers and acquisitions form the main component in FDI inflows.

Second, the service sector has become the main source of FDI inflows to China. Speaking about trends in FDI inflows in the first half of 2015, Wang Shouwen noted:

"Currently, the service sector accounts for 63.5% of investment from abroad, which is 23% more than in the same period in 2014. Previously, many believed that the growth of foreign investment in the service sector is mainly due to real estate. In fact, foreign investment in Chinese real estate declined in the first half of the year. A significant increase in foreign investment in the service sector is due to measures taken by the Chinese government to expand the openness of this area" [International Radio..., 2015].

Third, the share of manufacturing industry in FDI inflows is falling, but at the same time, foreign investors are steadily increasing their investments in such high-tech manufacturing industries as communication equipment, chemical and pharmaceutical products, and electrical components [Mezhdunarodnoe Radio..., 2015].

This picture suggests that the overall increase in labor costs has begun to affect manufacturing FDI that is sensitive to this factor, but high-tech industries are less affected by this factor. It was noted above that wage growth in China is quite noticeable, but it is significantly less in high-tech industries.

PROCESSES THAT IMPROVE THE INVESTMENT CLIMATE

While the investment climate directly affects current FDI inflows, the processes that improve the investment climate determine the dynamics of future inflows. The causal relationships that arise here are clear from the strategy map: processes improve the investment climate, which in turn increases the attraction of FDI to the country.

A group of processes that form the characteristics of the market and factors of production. Economic growth, measured by the rate of GDP growth, reflects the process of increasing the domestic market. In recent years, China's GDP growth rate has declined and is in the range of 7-8% [World Bank Data]. However, even now these rates are significantly higher than the global average, so the growing capacity of the Chinese market will continue to have a positive impact on the investment climate.

The improvement of the labor market is assessed by the dynamics of The Hays Global Skills Index. Over the period 2012-2015, this index of China improved from 5.5 to 4.7 points [Labor Markets..., 2015, p. 25], which indicates that the development of the labor market has a positive impact on the investment climate.

Creation of infrastructure facilities: over the period 2012-2015, China's infrastructure development index increased from 4.5 points (48th place) to 4.7 (46th place) [Global Competitiveness..., 2015, p. 140]. This is a moderate improvement, which indicates some positive impact on the investment climate.

Investor Relations Management Process Group. For the period 2012-2015:

- The index of regulatory restrictions on FDI decreased from 0.46 to 0.42 [FDI Regulatory..., 2015] (indicating that the process of increasing the openness of the economy continues).

- Bits have entered into force with Canada, Cameroon, Colombia, and Tanzania (indicating that the geographical scope of FDI protection is expanding) [China Bilateral..., 2015].

- The tax burden remained moderate and stable. In China, the income tax is 25%, while for enterprises with high and new technologies

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the income tax rate can be reduced to 15%. The standard value-added tax rate is 17%, but for transport services it is 11%, and for" modern services " - 6% [Corporate and Indirect..., 2014, p. 26]. In general, the above data indicate that the tax burden in China is very moderate by international standards and, therefore, in combination with other (tax and non-tax) incentives, it provides a competitive level of FDI incentives.

Risk Mitigation Process Group. Over the past four years (2012-2015), The PRS Group's China political risk index has consistently reached 70 points [Group Regional..., 2015]. This is not the best result in the region, but its stability is important for investors ' perception of future risks. Most likely, the majority of investors will assess the risks of investing in China as acceptable and not subject to an increasing trend.

Group of processes for improving the country's image. For the last three years (2013-2015), China has been ranked second in the A. T. Kearney FDI Confidence Index. And this place is quite stable, which indicates the strength of the country's image as one of the world leaders in attractiveness for foreign investment.

General assessment of investment climate improvement processes. These processes are evaluated here in relative terms, i.e. they take into account how China's position is changing in the corresponding ratings and comparisons. If a country ranks higher in a given ranking over time, this is taken as evidence of improvement. If the location does not change , it is concluded that the corresponding component of the investment climate has stabilized. The driving force behind improving the investment climate in China is the processes that shape the characteristics of the market and factors of production. This group of processes improves the investment climate. The other three groups of processes are more supportive. They provide stability or slight improvement in the relevant components of the investment climate.

BASIS OF DEVELOPMENT

The basis of development is the totality of the three capitals of society (human, informational and institutional). The quality of this aggregate determines, among other things, how large-scale and successful the processes of improving the investment climate will be.

According to the human Capital index, China ranked 64th in 2015 with 67.47 points (a hundred-point scale) [Human Capital..., 2015, p. 11], and 62nd in the network Readiness index (an indicator of information capital) with 4.2 points [Global Information..., 2015, p. 8]. And on the development of institutions (institutional capital) - 47th place also with 4.2 points on a seven-point scale [Global Competitiveness..., 2015, p. 154]. According to these data, the PRC ranks slightly above average in the world in terms of components of the development framework. To what extent can this quality of the development framework support successful processes to improve the investment climate?

To answer this question, consider the following. Two process groups, namely the investor relationship management process group and the risk mitigation process group, approximate the quality of the framework. There, too, the indicators are slightly higher than the global average. Consequently, the development framework is quite capable of supporting the processes of these two groups in the future. The group of processes that form the characteristics of the market and factors of production, in its development, is significantly ahead of the level of the basic development. But in the sphere of the market, a large role is played by the population of the country, which, like in China, does very little in absolute numbers.

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the domestic market is growing even at moderate rates of personal and investment consumption, which dramatically increases the favorable investment climate. In this regard, it is better to assess the basis of China's development by comparing it with other populous countries, such as India and Brazil.

A comparison of the development framework of China, India, and Brazil shows that this framework is more advanced in China. Thus, according to the human capital index, Brazil ranked 78th in 2015, India-100th (China-64th). According to the network readiness index, Brazil ranked 69th, India-89th ,and China-62nd. Finally, in terms of institutional development, India ranked 70th, Brazil 94th ,and China 47th [Global Competitiveness..., 2015, p. 154].

A balanced assessment of China's development framework may conclude that this framework is quite adequate to the conditions of a country with a very large market and can have a positive impact on improving the investment climate in the foreseeable future. However, the situation may change in the longer term. This will happen if China's GDP growth rate declines, and the cost of labor resources, on the contrary, rises to the global average. Then the most powerful components of the country's investment climate - a growing large market and low-cost skilled labor-will begin to erode.

Such a scenario will mean the need for a large-scale transition to an innovative economy, which will also require a better development basis. In this scenario, the country's development model will change objectively and, as a special case, the strategy of attracting FDI will change.

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