Multinational enterprises are modifying their strategies for doing business in the Mainland now that China has joined the World Trade Organisation by incorporating the country into their worldwide network, said Wang Zhile, director of MOFTEC's research centre on multinational corporations.

Speaking at the session entitled "Multinational Companies' Development in Shenzhen" on the second day of the PRD Conference, he said companies are also widening their scope of investment in a bid to turn their operations into a regional R&D hub. Upgrading the city's processing facilities is also expected to further enhanced Shenzhen's role as the "workshop of the world."

Multinational companies are optimistic they can reap substantial benefits with the further opening of China, because this will help them expand into new sectors, in particular research and development, and services and management. Many are aiming to gain a stronger foothold in the Mainland's manufacturing industry through mergers or acquisitions.

Mr Wang said Japan is a good example of how this is already happening. "Since 2001, Japanese enterprises have continued to beef up their investments in China. They see Mainland enterprises as business partners that able to bring value to the arrangement." He added that Japan's electrical products giant, National/Panasonic, recently moved its entire U.S. production line to the Mainland and established a R&D centre in the country.

Mainland trade statistics show that the flow of capital into China has started to accelerate again after a slight slowdown between 1997 and 1999. Foreign direct investment in China for the first three months of 2002 amounted to US$10.1 billion, a surge of 27.5 per cent compared with the same period a year ago. Accumulated FDI as of the end of March this year was US$405.3 billion, while contractual foreign investment reached US$763.1 billion.

However, Mr Wang said, "China's WTO entry will intensify competition among foreign investors and Chinese enterprises, and among different economic regions in China, which are all jockeying for overseas funds."

Bohai Economic Circle, Yangtze River Delta and the Pearl River Delta, which are driven largely by Beijing/Tianjin, Shanghai and Hong Kong respectively, are China's three main investment destinations. The PRD is currently the most competitive among these regions, although the Yangtze area is continuously growing in terms of competitiveness with its deep pool of engineering and management personnel.

Even so, Mr Wang said Hong Kong's role as the gateway to China for foreign companies and the powerhouse of PRD's economic growth cannot be replaced. He said, the delta's biggest strengths lie in its fully developed production chain and close business network. Cities in the delta must join hands to accelerate development of the whole region if they want to remain ahead of the others.

Commenting on the investment trends in Shenzhen, Mr Wang said the city is experiencing a surge in foreign investment, taking US$15.8 billion of foreign funds as of the end of 2000, and an estimated US$3.7 billion last year. As of the end of 2001, some 79 of the Fortune 500 companies had invested US$1.3 billion in 98 projects in Shenzhen, of which 31 are for the services sector, while 66 are for manufacturing, he said.

As a special economic zone in China for over two decades, Shenzhen has attracted hundreds of manufacturers. But with China's WTO entry, it is now aiming to transform itself into an advanced financial, distribution, transportation and professional services centre for the country.

Marina Wong, partner, PricewaterhouseCoopers, who spoke about the booming services sector in Shenzhen during the session, echoed Mr Wang's views. "A lot of ingredients for boosting these industries are in place in the city. Foreign investment has a role to play in pushing the industry further forward."

Overseas funds pouring into the city have been driving forward the service sectors in recent years. In 2000, contractual foreign investment in Shenzhen's services industries expanded by 209.9 per cent to US$470 million, accounting for 18 per cent of the total foreign investment in the city.

With the PRD as its hinterland, Shenzhen can work hand in hand with Hong Kong to help accelerate growth in the region, she said.

Pauline Ngan, deputy chairman, Mainland Headwear Holdings Ltd, the third speaker of the session, said that while Shenzhen is moving towards becoming a service industry, she believes the area will still be a manufacturing powerhouse for some time to come. She expects the lifting of quotas on China's products with its entry into the WTO will enhance the overall competitiveness of Mainland products.

Hong Kong has long been the financial platform for investments in the PRD region, but it can now also provide the financial tools to help Mainland companies enter international markets. But to do so, companies will need to take time to develop their businesses by being continually innovative and seeking ways to expand their market share.