Words to Deeds
More restrictions on foreign investment removed amid new opening-up push
As the COVID-19 pandemic rants and raves on, China has maintained its openingup efforts throughout 2021 and now into 2022. On New Year’s Day, the shortened negative lists for foreign investment became effective.
The areas off-limits to foreign investors are cut from 30 to 27 in the pilot free trade zones (FTZs). In non-FTZ areas, the reduction goes from 33 to 31. All restrictions on foreign investment in the manufacturing sector in the FTZs have been lifted, and the service sector in the FTZs will continue to open up, according to a statement jointly released by the National Development and Reform Commission and the Ministry of Commerce (MOFCOM) on December 27, 2021. There are 21 FTZs across China, accounting for 0.4 percent of the country’s territory but 17 percent of foreign investment in 2020.
The cap on foreign ownership in passenger car manufacturing is lifted. Restrictions on a foreign investor establishing more than two joint ventures in China to produce the same vehicle product are also removed. On-ground receiving facilities and key components for satellite television and radio broadcasting have been opened to foreign investment, with all investors treated equally.
In the service sector, restrictions on foreign investors’ access to market research in the FTZs are abolished, but Chinese partners must be the controlling shareholders of enterprises in the radio and TV ratings survey sector. Foreign companies in the FTZs are also allowed to enter the social research industry, as long as shares held by Chinese enterprises are not less than 67 percent.
In 2017-21, the Chinese Government revised the two negative lists for five consecutive years. “In addition to meeting the calls of foreign investors, easier market access also helps improve China’s market system and boosts domestic demand,” Liu Xiangdong, a researcher at the China Center for International Economic Exchanges, told business portal Yicai.com.
According to MOFCOM, paid-in foreign direct investment (FDI) into the Chinese mainland grew 15.9 percent year on year to over 1 trillion yuan ($156.85 billion) in the first 11 months of 2021, surpassing the yearly total of 2020. During this period, FDI into the service sector increased 17 percent year on year, while hi-tech manufacturing industries saw overseas capital inflow jump 14.3 percent.
China now has a number of competitive advantages in its complete industrial chains, including strong infrastructure, a large number of skilled workers and an improved business environment. Foreign investor expectations and confidence in the Chinese market remain stable, MOFCOM said.
Fast-tracking
The auto sector in China has continued to embrace foreign investors. Nevertheless, between 1994 and 2018, foreign carmakers were allowed to own no more than 50 percent of their joint ventures with Chinese partners.
In 2018, China lifted restrictions on foreign ownership in new-energy vehicles (NEVs). The Gigafactory of U.S. electric automaker Tesla in Shanghai is the first wholly foreign-owned automaking project in the country, starting delivery in 2019. The following year saw the removal of the restrictions on foreign ownership for manufacturers of commercial vehicles.
“The move at the beginning of this year marks the end of the previous policies, meaning that the auto sector has opened up within only four years,” Cui Fan, a professor at the University of International Business and Economics, told Beijing Review.
China is the largest auto market in the world. In 2018-20, the average number of cars per 100 households in China increased from 33 to 37.1, according to the National Bureau of Statistics. Data from the China Association of Automobile Manufacturers showed that the country’s auto sales rose 4.5 percent year on year to nearly 23.49 million units in the first 11 months of 2021.
Industry insiders believe greater openness is significant to fair market competition. As homegrown NEV startups are booming, the launch of the policies may not affect China’s auto market on the short term, according to Cui Dongshu, Secretary General of the China Passenger Car Association.
“Chinese automakers face challenges and also great opportunities. Our carbon peaking and neutrality goals and the tougher NEV subsidy policies place high requirements on green development of the sector,” Cui Fan said.
Liu stressed that the participation of foreign firms is vital for the development of China’s manufacturing industry. The introduction of overseas hi-tech manufacturers can help drive domestic industrial restructuring, he added.
On January 1, the Regional Comprehensive Economic Partnership, the world’s largest free trade deal, came into force. Fifteen Asia-Pacific countries—10 members of the Association of Southeast Asian Nations, China, Japan, the Republic of Korea, Australia and New Zealand—signed the agreement in November 2020.
“The rollout is expected to result in lower tariffs on NEV batteries and auto components. The dropping costs and improving trade facilitation will enhance the competitiveness of auto enterprises and benefit consumers,” Cui Fan said.
Service access
The opening up of China’s service sector began later but developed more rapidly compared with the manufacturing industry. In 2005, it occupied only 24.7 percent of China’s FDI. The proportion increased to over 50 percent in 2011 and 77.7 percent in 2020. China’s international trade in services from January to November 2021 surpassed 4.67 trillion yuan ($734.8 billion), a year-on-year increase of 14.7 percent, according to MOFCOM.
“China has been advancing the opening up of the elderly care, medical service and education sectors in recent years. The lifting of restrictions on foreign investment in market research opens up another market with lots of potential,” Liu said.
According to Cui Fan, sectors such as culture and aerospace see great room of FDI growth. He suggests the government implement pilot programs in the FTZs and further ease institutional barriers. As the negative list for cross-border trade in services in the Hainan Free Trade Port has been unveiled, the negative lists applicable to other regions need to be formulated as soon as possible, he said.
In early December 2021, 67 members of the World Trade Organization (WTO), including China and the United States, which cover about 90 percent of global trade in services, signed the Joint Statement Initiative on Services Domestic Regulation. The move aims to slash administrative costs and create a more transparent operating environment for service providers hoping to do business in foreign markets, according to the WTO.
“While launching the negative lists for foreign investment in the service industry, the government also needs to follow the new WTO rules,” Cui Fan said.