Zhao Jinping: The foreign exchange reserves and FDI are playing different roles in market economy and cannot replace each other. Foreign investors will not only bring us the funds for development, but also other value-added components that help to improve China's productivity levels, promote market competition and develop a healthy market system. The utilization of FDI is totally different from the reserve of foreign exchange kept to maintain the balance of payments and financial stability.

The centerpiece of this transformation is to enhance the efficiency of FDI utilization with three aspects factored in. Above all, our focus will shift to the transfer of advanced technology, management experience and high-caliber professionals specializing in certain sectors. We will also give priority to some environment-friendly, energy-saving foreign-funded projects, as well as spur on more foreign investment in the modern manufacturing and service sectors.

Are there any contradictions between the strengthening of foreign investment and the improvement of the local R&D system?

Zhao: We will stick to the opening-up policy to encourage more personnel exchanges and technology transfers. To enhance the local R&D system must give full play to the roles of market and enterprises. There are three major channels for companies to acquire new skills--foreign-invested hi-tech R&D centers, technology spillover effects of multinational companies, and innovations of local enterprises.

The joint ventures financially and technically supported by multinationals are also helpful to elevate China's innovative capacity. Owing to their competitive edge in science and technology, rich capital and plenty of brand management experience, these joint ventures will bring in intensive competitive pressure, leaving only the fittest to survive. The survivors have to face the challenges of the market competition by enhancing their core competence and innovative capability. Anyway, whatever the results are, in an open market environment, competition will help stimulate innovation in general.

Zhang: Some people may argue because of their misunderstanding about the relationship between hi-tech transfer and R&D by local enterprises. Not all companies operating in China can be seen as local entities, and the inventions of foreign-funded affiliates cannot be factored in. In a global village, every link on the business chain can be realized by international cooperation, but it is illegal to share unauthorized intellectual properties. Other people are inclined toward another extreme, believing that innovation should be completely proprietary, refusing any help offer from the foreign partnership. Actually, China should learn how to protect its intellectual property rights, while at the same time, develop a partnership for advanced technology and research methods that will help its intangible assets and value-added techniques. Of course, we have seen some conflicts between the two. Foreign companies are afraid of China's growing innovative capacity, thus they are reluctant to transfer high technology to China. Therefore, Chinese enterprises should be more aware of the importance of self-innovation.

The R&D centers set up by foreign companies will contribute to China's innovation system. Despite more wholly foreign-owned companies aiming at preventing technology spillover, we will give more preferential treatment to the multinationals with R&D centers in China.

How will the Chinese Government adjust its Catalogue for the Guidance of Foreign Investment Industries to optimize industrial structure in further opening to the international market, while still protecting the environment and curbing investment in sectors trapped in overcapacity and low efficiency?

Zhao: We hope foreign investors to aim high in China by investing more in the hi-tech industry, modern manufacturing and service sectors, which would motivate China's industrial restructuring. China will also further promote energy-saving and environment-friendly projects and drop those resource-consuming and polluting industries.