A New Foreign Investment Regime for a New Era of Socialist Modernization
By Sourabh Gupta |
chinawatch.cn |
Updated: 2019-03-06 15:26
Something momentous is stirring within the policy framework of China’s foreign investment regime. Unmistakable signs have been evident over the past 9 months.
Last April, a week after President Xi Jinping declared that China would be a vanguard protector of globalization and economic liberalization and pledged a new round of opening-up and reform at the Boao Forum for Asia, Beijing relaxed its equity joint venture requirements in the automotive sector. Foreign equity caps on manufacture of electric vehicles were eliminated on December 31 and those for all such automotive ventures are to be phased out by 2022. At the Boao Forum, governor of People’s Bank of China, Yi Gang, also laid out a precise timetable (end-2018) by which foreign ownership limits in securities, fund management, and futures and life insurance would be upped to 51 percent.
In end-June, China unveiled a trimmed negative list for foreign investment, introducing new openingup measures in 22 sectors. Some of these openings, such as in seeds, railway networks, power grids, and aircraft manufacturing, were ones that the government had, hitherto, been reluctant to open. This January, BT Group PLC, became the first international telecoms company to be granted permission to provide direct services to business customers in China. And， also in January, S&P Global Inc. became the first of the international credit rating majors to win approval to establish a wholly-owned subsidiary in Beijing – fulfilling a promise made in May 2017 as part of the U.S.-China Comprehensive Economic Dialogue’s 100-Day Action Plan. A number of . US biotechnology product applications stemming from that Action Plan were also recently approved by Chinese regulators.
Come-March 2019, China’s foreign investment regime is expected to witness a significant leap forward with the fast-tracked passage of a streamlined and liberal foreign investment law at the annual “Two Sessions”, or the annual meetings of the law-making and political advisory bodies. The tightly-worded, six-chapter, 39-article draft is to serve as a Basic Law, repealing the three existing foreign investment laws (the Wholly Foreign-Owned Enterprises Law; the Chinese-Foreign Equity Joint Ventures Law; the Chinese-Foreign Contractual Joint Ventures Law). Once legislated, the law will fully redeem President Xi’s pledge at the 19th National Party Congress in October 2017 to adopt “a system of pre-establishment national treatment plus a negative list across the board … and protect the legitimate rights and interests of foreign investors”。
Equally, the foreign investment law will substantially redeem the pledge to the US, as part of the 90-day trade truce talks, to treat all businesses registered in China – including foreign-owned businesses – equally. The law’s investment protection clauses specifically prohibit forced technology transfer by administrative measures and obliges various levels of local people’s governments to strictly abide by central government rules. A working mechanism to address complaints by foreign businesses is also envisaged. In this regard, the authorities would do well to contemplate establishing an ombudspersons bureau within the Vice-Premier’s office or within the Commerce Ministry to expeditiously deal with such complaints. This enforcement-minded foreign investment law follows on the heels of the inauguration of a national appeals court within the Supreme Court to swiftly deal with intellectual property rights cases.
Four decades after Deng Xiaoping had initiated a great journey of reform and opening-up, the reform of China’s foreign investment regime can be traced to the imperatives of a new era of socialist modernization – one that qualitatively aims to transition the economy to a more sophisticated and productivity-led growth model. With the anti-corruption campaign having netted “tigers and flies” alike, and with government fundamentally re-organized and streamlined to implement the challenges of this “new historical starting point”, President Xi now stands at the pinnacle of his political power to push through another multi-decade-long era of foreign and domestic economic policy liberalization.
Deng’s visionary liberalization of China’s trading regime irrevocably altered the course of global manufacturing in light and medium technology-intensive industries – and China’s role therein. So also, President Xi’s liberalization of China’s investment regime embodies the potential to transform China into the advanced manufacturing workshop of the world. For this to be the case fully though, China should unswervingly continue to pare down its negative list, widen investment market access to OECD standards, and confront the day-to-day obstructions that foreign and local businesses face in the shape of “glass doors” of policy without regulation, “swing doors” of hard and fast rules, and “revolving doors” of added rules for would-be entrants.
China is a significant exporter of capital in its own right, with a growing taste for overseas mergers and acquisitions in the high-technology manufacturing space. In keeping with this evolving role, China should champion the establishment of meaningful disciplines at the multilateral level in the form of a World Trade Organization Agreement on Investment. Its active role in Geneva to pursue structured discussions leading to the creation of a multilateral framework on investment facilitation is a good start. “That international trade should be abundant, that it should be multilateral, that it should be non-discriminatory” was the widely-expressed sentiment at the Preparatory Committee gathered in October 1946 to frame the charter for the post-war global trading order. China must endeavor to inscribe this sentiment as the guiding principles of the 21st century global investment order too.
Sourabh Gupta is a resident senior fellow at the Institute for China-America Studies in Washington, D.C.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
Something momentous is stirring within the policy framework of China’s foreign investment regime. Unmistakable signs have been evident over the past 9 months.
Last April, a week after President Xi Jinping declared that China would be a vanguard protector of globalization and economic liberalization and pledged a new round of opening-up and reform at the Boao Forum for Asia, Beijing relaxed its equity joint venture requirements in the automotive sector. Foreign equity caps on manufacture of electric vehicles were eliminated on December 31 and those for all such automotive ventures are to be phased out by 2022. At the Boao Forum, governor of People’s Bank of China, Yi Gang, also laid out a precise timetable (end-2018) by which foreign ownership limits in securities, fund management, and futures and life insurance would be upped to 51 percent.
In end-June, China unveiled a trimmed negative list for foreign investment, introducing new openingup measures in 22 sectors. Some of these openings, such as in seeds, railway networks, power grids, and aircraft manufacturing, were ones that the government had, hitherto, been reluctant to open. This January, BT Group PLC, became the first international telecoms company to be granted permission to provide direct services to business customers in China. And， also in January, S&P Global Inc. became the first of the international credit rating majors to win approval to establish a wholly-owned subsidiary in Beijing – fulfilling a promise made in May 2017 as part of the U.S.-China Comprehensive Economic Dialogue’s 100-Day Action Plan. A number of . US biotechnology product applications stemming from that Action Plan were also recently approved by Chinese regulators.
Come-March 2019, China’s foreign investment regime is expected to witness a significant leap forward with the fast-tracked passage of a streamlined and liberal foreign investment law at the annual “Two Sessions”, or the annual meetings of the law-making and political advisory bodies. The tightly-worded, six-chapter, 39-article draft is to serve as a Basic Law, repealing the three existing foreign investment laws (the Wholly Foreign-Owned Enterprises Law; the Chinese-Foreign Equity Joint Ventures Law; the Chinese-Foreign Contractual Joint Ventures Law). Once legislated, the law will fully redeem President Xi’s pledge at the 19th National Party Congress in October 2017 to adopt “a system of pre-establishment national treatment plus a negative list across the board … and protect the legitimate rights and interests of foreign investors”。
Equally, the foreign investment law will substantially redeem the pledge to the US, as part of the 90-day trade truce talks, to treat all businesses registered in China – including foreign-owned businesses – equally. The law’s investment protection clauses specifically prohibit forced technology transfer by administrative measures and obliges various levels of local people’s governments to strictly abide by central government rules. A working mechanism to address complaints by foreign businesses is also envisaged. In this regard, the authorities would do well to contemplate establishing an ombudspersons bureau within the Vice-Premier’s office or within the Commerce Ministry to expeditiously deal with such complaints. This enforcement-minded foreign investment law follows on the heels of the inauguration of a national appeals court within the Supreme Court to swiftly deal with intellectual property rights cases.
Four decades after Deng Xiaoping had initiated a great journey of reform and opening-up, the reform of China’s foreign investment regime can be traced to the imperatives of a new era of socialist modernization – one that qualitatively aims to transition the economy to a more sophisticated and productivity-led growth model. With the anti-corruption campaign having netted “tigers and flies” alike, and with government fundamentally re-organized and streamlined to implement the challenges of this “new historical starting point”, President Xi now stands at the pinnacle of his political power to push through another multi-decade-long era of foreign and domestic economic policy liberalization.
Deng’s visionary liberalization of China’s trading regime irrevocably altered the course of global manufacturing in light and medium technology-intensive industries – and China’s role therein. So also, President Xi’s liberalization of China’s investment regime embodies the potential to transform China into the advanced manufacturing workshop of the world. For this to be the case fully though, China should unswervingly continue to pare down its negative list, widen investment market access to OECD standards, and confront the day-to-day obstructions that foreign and local businesses face in the shape of “glass doors” of policy without regulation, “swing doors” of hard and fast rules, and “revolving doors” of added rules for would-be entrants.
China is a significant exporter of capital in its own right, with a growing taste for overseas mergers and acquisitions in the high-technology manufacturing space. In keeping with this evolving role, China should champion the establishment of meaningful disciplines at the multilateral level in the form of a World Trade Organization Agreement on Investment. Its active role in Geneva to pursue structured discussions leading to the creation of a multilateral framework on investment facilitation is a good start. “That international trade should be abundant, that it should be multilateral, that it should be non-discriminatory” was the widely-expressed sentiment at the Preparatory Committee gathered in October 1946 to frame the charter for the post-war global trading order. China must endeavor to inscribe this sentiment as the guiding principles of the 21st century global investment order too.
Sourabh Gupta is a resident senior fellow at the Institute for China-America Studies in Washington, D.C.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
