CHINA has shown resolve to continue reform and opening-up, and expand market entry at its own pace against a tide of global protectionism. Firm action in this direction was taken on June 28 by the National Development and Reform Commission (NDRC) and the Ministry of Commerce, who published the Special Administrative Measures (Negative List) on Access of Foreign Investment (2018). The list gives details of the country opening up 22 more industries in the primary, secondary, and tertiary industries to foreign investment. These include finance, transportation, professional services, infrastructure, energy, resources, and agriculture.
“The revision of the negative list follows the principle of further increasing opening-up. It is not simply about reducing the list. What’s more important, we must roll out milestone measures for the opening-up of key areas,” said an NDRC official.
Production of Beijing Benz Automotive Co.,Ltd. reaches the one million cars mark on November 17, 2016.
Over the past years China has introduced and improved the negative list for the access of foreign investment in pilot free trade zones. Last year the practice was expanded to the rest of the country. To date the number of restrictions on foreign investment has been slashed from 180 to around 60. The 2018 negative list shed 15 items over the 2017 list, further reducing the areas where foreign investment is subject to government review and approval.
“China has adopted a foreign investment administration model of pre-establishment national treatment plus a negative list. This move marks an institutional reform in response to new developments in economic globalization and changes in international rules for investment,” states the white paper, China and the World Trade Organization, published by the State Council Information Office on June 28.
As an indication of the improving business environment, in the first five months of this year, incoming investment from developed economies spiked, with actual investment from Singapore, South Korea, Japan, the U.S. and the U.K. soaring 33.9 percent, 66.9 percent, 5.1 percent, 16.3 percent, and 56.9 percent respectively. The 2018 Business Climate Survey by the American Chamber of Commerce in China finds that about 60 percent of interviewed companies listed China among the world’s top three investment destinations, and 74 percent planned to expand their investments in China this year, both highest proportions in recent years.
The 2018 negative list marks another step in China’s path to ease market entry for foreign capital. It scraps the block on such manufacturing industries as automobiles, airplanes, and shipbuilding, and relaxes access to service industries like finance and transportation. This change signifies that China’s system of foreign investment management is being reformed to be more open, flexible, and efficient, which is important for the country’s goal of building an open economy, said Li Dawei, assistant researcher with the Institute of International Economic Research, Academy of Macroeconomic Research.
Automobile and Finance
Over the past months UBS Securities, Nomura, and JPMorgan Chase all sent in applications to China Securities Regulatory Commission for joint-venture securities firms in which they will have a controlling stake.
The 2018 negative list charts out the roadmap and timetable for the opening up of the automobile and financial sectors. For the former, the cap on foreign-held shares in the manufacturing of special-purpose vehicles and new-energy vehicles is removed this year; that on commercial vehicles will be scrapped in 2020; and that on passenger vehicles will be rescinded in 2022. In addition the regulation that a foreign company can set up no more than two joint-ventures producing the same kind of whole vehicles in China is removed.
As for the financial sector, starting this year, restrictions on single share-holdings not exceeding 20 percent and total shareholdings not exceeding 25 percent for overseas financial institutions investing in Chinese commercial banks have been removed. The allowed proportion of foreign investment in securities companies, futures companies, and insurance companies has also changed from 50 percent to 51 percent, and these limitations will be eliminated in 2021.
“We will increase opening-up step by step to allow related sectors some time for transition, and meanwhile make greater opening-up more predictable,” said the official with NDRC. Over the past 40 years, China’s market economy has gained maturity amid increasing global interactions, and Chinese companies have blossomed amid fierce international competition. As a result, the country’s economic transformation and upgrading are accelerating.
“In this new era, foreign investment in China shows a trend of concentrating in the sectors of hi-tech services and high-end manufacturing. In response to this trend and on the basis of its development strategies and experience, the Chinese government voluntarily makes the choice of expanding market access and improving the business environment,” said Zhang Yansheng, chief researcher with China Center for International Economic Exchanges.
Openness Stimulates Growth
The latest negative list signifies further opening-up in multiple sectors that have an immediate impact on China’s pursuit of high-quality development.
“With greater maturity of our industrial, policy, and legal systems, China has built a solid foundation for high-quality development,” said the official with NDRC. The new opening-up measures will further deepen cooperation and exchanges between China and the rest of the world in the fields of capital, technology, management and human resources, and bring about win-win results over a broader spectrum.
For instance, increasing the market access for manufacturing of high added value products like automobiles will escalate the supply of high-quality products for Chinese consumers. What’s more, the competition and cooperation with their foreign peers will goad local producers all along the production line to increase their research and development inputs and innovative management, which will lead to better products, services, and higher technical levels.
Relaxing market access for logistics and specialized services will facilitate the combination of foreign firms’ advantages in the service industry with Chinese firms’ advantages in the processing and manufacturing industry, and promote the upgrading and transformation of China’s manufacturing sector in general.
Greater openness of the financial service sector will increase the efficiency of capital allocation, reduce the financing cost of businesses, and motivate them to invest more in innovation and technical upgrading. These will all lead to improvement in the quality of supply.
“Improving the quality of supply demands high-quality foreign investment,” said Li Dawei. The inflow of high-quality foreign investment will not only result in more options for consumers but also create the catfish effect – prompting domestic companies to produce products of better quality that can meet Chinese people’s ever-growing needs for a better life.
The volume of foreign direct investment (FDI) in China has remained the largest among developing countries for 26 years. After China joined the WTO, its FDI climbed from US $46.88 billion in 2001 to US $136.32 billion in 2017, growing by an average of 6.9 percent year on year. This was due to the country’s continuous opening-up, which is also the prerequisite for China’s transition to high-quality development.
According to the NDRC, despite the profound changes in the international environment, especially surging trade protectionism, China is poised to open wider, and advance its reforms, development, and innovation with greater openness. While shifting to high-quality development, it is also advancing economic globalization to new levels.
AN BEI & CHEN WEIWEI are reporters with Xinhua News Agency.