China Rolls out a Series of Polices to Attract Foreign Investment

By Huo Jianguo

This year China has been rolling out a series of policies to attract foreign investment, and a new round of high-level opening up is making rapid progress.

On July 17 the 16th meeting of the Central Finance Leading Group discussed such issues as improving the investment and market environment and opening wider to the outside world. It stressed the “negative list” management for foreign investment that has now been tested in the pilot free trade zones, and to relax the restrictions on foreign investment access and share in such competitive fields as general manufacturing and service sectors.

On July 26 the State Council executive meeting held a more intensive discussion on the issues of further expanding opening up and boosting foreign investment, and some related matters.

On August 16 the State Council promulgated a document presenting policies and measures from five perspectives to promote foreign investment growth: further expanding market access for foreign investors, establishing fiscal and taxation support policies, bettering the comprehensive investment environment in the national development zones, improving the system of introducing foreign talent, and developing the relevant laws and regulations, so as to advance services for foreign investment.

All in all, China should make its foreign investment environment more law-based, more international, and more convenient in order to promote growth and raise the quality of foreign investment.

Earlier this year the State Council issued a notice calling for opening up and attracting foreign capital. All these polices create a new regulatory framework on attracting more foreign investment, and a better business environment than before.

Developing an Open Economy

The active use of foreign capital is an important part of China’s opening up. As the current framework of economic globalization changes and presents China with new situations and tasks, it is essential to make good use of foreign capital in order to advance supply-side structural reform, realize high-level economic development, and keep pace with global scientific and technological progress.

Back in 2013, the Third Plenary Session of the 18^th CPC Central Committee had already endorsed measures for comprehensive deepening reform. Of these, the requirements concerning an open economy involved three main actions: relaxing investment access, accelerating the construction of free trade zones, and expanding opening up in the inland border cities.

The core of these requirements is to expand open markets, make active and effective use of foreign capital, and in particular to give priority to the opening up of the central and western regions so as to take full advantage of industrial transfer and enhance the coordinated development of the eastern, central and western regions.

The year of 2020 is not only the last year of China’s 13^th Five-Year Plan, but also a key year to fulfill the first centennial goal. To achieve the required objective on schedule, it is necessary to ensure that the average annual growth rate in the entire 13^th Five-Year period should not fall below 6.5%.

Creating a Good Business Environment

The years of 2015 and 2016 witnessed a real annual growth rate of 6.7%. Accordingly, China is full of confidence in its economic growth. But it will be no easy task to maintain this rate.

It cannot be ignored that foreign investment is an important factor in China’s economic development. Therefore, it is of great significance for the steady increase of China’s national economy to improve the business environment and promote foreign investment.

Through creating a good business environment, widening market opening and access, the development of foreign investment can continue to remain stable, so that China will truly become a new magnet for investment.

Foreign investment has played an important role in China’s national economic development. It not only accounts for an important share of employment and taxation, but also plays a big role in medium- and high-end manufacturing and advanced technology.

As a result, the volume of foreign investment exerts a great influence on the stable development of the national economy and the growth of exports. In terms of the scale of foreign investment annual inflows, China’s current per capita figure is only about $80, while the international average is $110 and the figure for developed countries is $534. Therefore China still has a big gap to close.

In January this year, the State Council issued a document to ease restrictions on foreign investment access in a large number of sectors such as services, manufacturing, and mining, and also introduced 20 specific measures concerning fair competition, intellectual property rights and other areas.

In terms of market opening, in mid-June the State Council issued a new negative list of bans for foreign investment in its free trade zone, eliminating 10 items and 27 measures including rail transit equipment, pharmaceuticals, road transport, insurance, accounting, and auditing.

Shortly afterwards, the National Development and Reform Commission and the Ministry of Commerce issued a revised foreign investment catalogue, cutting 30 restrictive measures.

These new opening-up policies will certainly attract new foreign investment, and with the inflow of foreign capital some service sectors and high-end manufacturing will achieve rapid development and become new drivers of economic growth.

Global Competition Impacts on China’s Foreign Investment

The slowdown in global direct investment has had a significant impact on China’s foreign investment. According to the report released by the United Nations Conference on Trade and Development (UNCTAD), the total figure for global investment would increase from $1.75 trillion of the year 2016 to $1.8 trillion of the year 2017.

Due to the US and European economic recovery, the Federal Reserve interest rate increase, and low oil prices, the proportion of global capital inflows to developed countries rose sharply to $1 trillion, an increase of about 5%. The US once again became the largest target for capital inflow, and the foreign investment inflow to the EU rebounded after three consecutive years of negative growth. Meanwhile, foreign direct investment in developing countries decreased by 14% to $646 billion, demonstrating quite clearly that in recent years developed countries have an absolute advantage in FDI inflows and growth rate.

US trade protectionism has also had a new negative impact on China’s foreign investment.
On August 14, US president Donald Trump signed an administrative memorandum in the White House, instructing the US trade representative Robert Lighthizer  to  decide on Section 301 investigation into China’s “unfair trade behavior”.

Trump’s policy focus on the United States can be summed up as “buy US goods, hire Americans, implement import quotas, and attach great importance to addressing the problem of trade imbalance”. All of these have a potential impact on China’s economy.

Emerging economies in Asia are trying to make use of their labor cost advantage to attract foreign investment. This constitutes another new challenge to China’s attempts to expand foreign investment.

Market access and the national approach to foreign investment still need to be improved.

Since the Third Plenary Session of the 18^th CPC Central Committee, the Central Committee has made clear the direction of further expanding the application of foreign capital and some related fields. However, the specific policies still lack transparency.

In some monopoly industries, barriers to foreign investment are still relatively high, and in some sectors national policy for foreign investors also restrict their enthusiasm, such as restrictions on investment shareholdings and problems concerning advanced technology, product research, and technical operations. Changing the mindset and seeking new breakthroughs for opening up is the key to breaking this deadlock.

China opposes trade protectionism. An open economy build-up not only helps speed up the development of China’s economy itself and maintains healthy and stable economic growth, but also contributes to China global integration, adds new momentum to world economy.

(China Society for World Trade Organization Studies, vice-president Huo Jianguo)