Easier accesses

The guidelines address easier market access for foreign investments as well.

The Central Government will allow local governments a larger say in examining and approving FDI projects, said Zhang.

This change will enable local governments to approve investments worth less than $300 million under the "encouraged" and "permitted" categories of the catalogue, except for specially designated items that need central approval.

It's significant because local governments could only approve investments smaller than $100 million before the revision, he said.

But for investments worth more than $50 million under the "limited" category, the Central Government still controls the ratification, in order to avoid the scenario that some reckless local governments court FDI at all costs, he said.

MOFCOM approved only 56 of the 23,400 newly established foreign companies in China last year, said Ma.

Local governments have to adapt to the changing interests of foreign investors, too.

"Local governments need to adjust policies originally designed to attract FDI for the manufacturing sector, as an increasing number of foreign investors are now interested in service outsourcing, hi-tech, new energy and environmental businesses, though manufacturing will remain the major attraction for FDI in China in the near future," said MOFCOM spokesman Yao Jian.

China remains the most preferred destination for foreign investors, say survey results from A.T. Kearney Inc. and the UN Conference on Trade and Development.

China's FDI dropped 2.6 percent to $90 billion last year, while global FDI plummeted nearly 40 percent.

"We are aware that we have to do more in order to maintain this strength in attracting FDI, as all nations vie to woo FDI by more favorable policies after the crisis," Yao said.

The country has been the biggest FDI destination of all developing countries for 17 years. Its FDI flow increased 7.7 percent to $23.44 billion in the first quarter of 2010.

Diversified investments

Another highlight of the guidelines is that foreign capital is encouraged to participate in the reorganization and restructuring of domestic companies by becoming a shareholder or strategic investor of listed companies on the A-share market, or through merger and acquisition (M&A) efforts.

It's a breakthrough that foreign-funded companies are allowed to purchase Chinese companies, said Wang Zhile, a researcher with MOFCOM.

Nearly 80 percent of global FDI are completed through M&A, but M&A accounts for less than 5 percent of FDI in China, he said.

Foreign investors are also encouraged to establish warrant funds to address the financing difficulties of small and medium-sized companies, and play the angel investor for start-up businesses. At the same time, the guidelines propose to utilize private equity funds and establish a complete mechanism for these funds to exit their investments.

Christian Murck, the newly appointed president of the American Chamber of Commerce in China, considered it highly significant that the Chinese Government pledges detailed measures to support trading of foreign companies on China's stock markets.

The guidelines propose supporting qualified foreign companies to seek listing and issue corporate bonds and medium-term bills in China.

This move "reflects the confidence the Chinese Government has in the securities market and will provide individual investors new opportunities if stocks of foreign companies are successfully traded in China," said Murck.

Still, Murck said they await details on the implementation of the guidelines.