Re­form and Open­ness:

Free, Fair and Open

NewsChina - - CONTENTS - By Wang Quan­bao and Li Jia

China's four decades of re­form and open­ing-up have been de­scribed by Chi­nese Pres­i­dent Xi Jin­ping as “self-rev­o­lu­tion and self-re­form.” In his key­note speech at the open­ing cer­e­mony of the 2018 Boao Fo­rum for Asia (BFA) An­nual Con­fer­ence in South China's Hainan Prov­ince on April 10, he ar­gued that open­ness to the rest of the world had set the stage for China's eco­nomic growth for 40 years, and fur­ther open­ing would chart the coun­try's way for­ward to high-qual­ity growth in the fu­ture.

Xi fore­shad­owed a range of poli­cies in that vein, in­clud­ing lower re­stric­tions on for­eign eq­uity in China's fi­nan­cial sec­tor and au­to­mo­bile man­u­fac­tur­ing, a more trans­par­ent reg­u­la­tory frame­work in align­ment with in­ter­na­tional rules, more ef­fec­tive in­tel­lec­tual prop­erty pro­tec­tion and in­creases in im­ports. He pledged that these mea­sures would be im­ple­mented “sooner rather than later.”

He crit­i­cized the “cold war men­tal­ity and zero-sum game,” and the ideas of “con­fronta­tion” and “beg­gar thy neigh­bor.” He promised that China would never bully any­one, top­ple the ex­ist­ing global sys­tem or seek a sphere of in­flu­ence. Chi­nese an­a­lysts say these re­marks were aimed squarely at the US.

Fur­ther open­ing up to the rest of the world is en­shrined in China's top pol­icy dec­la­ra­tion. “China ad­heres to the fun­da­men­tal na­tional pol­icy of open­ing up and pur­sues de­vel­op­ment with its doors open

wide,” states the re­port ap­proved at the 19th Na­tional Congress of the Com­mu­nist Party of China (CPC) in Oc­to­ber 2017.

Re­form and open­ing-up have un­der­writ­ten China's eco­nomic take­off over the past four decades. Now China is pur­su­ing high-qual­ity growth. This means be­ing more open to the rest of the world to en­cour­age Chi­nese en­ter­prises to par­tic­i­pate in in­ter­na­tional com­pe­ti­tion, Zhang Yan­sheng, Chief Re­searcher of the China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes, a think tank un­der the Na­tional De­vel­op­ment and Re­form Com­mis­sion, told Newschina.

The mea­sures of open­ness an­nounced at Boao fo­cus on mar­ket ac­cess, in­tel­lec­tual prop­erty pro­tec­tion, busi­ness en­vi­ron­ment and im­ports. Pro­fes­sor Zhao Zhongxiu, vice pres­i­dent of the Uni­ver­sity of In­ter­na­tional Busi­ness and Eco­nomics, thinks they are de­signed to break the bot­tle­neck of China's open­ness in the next stage and lay an in­sti­tu­tional foun­da­tion to fa­cil­i­tate the open­ing. He added in his in­ter­view with Newschina that these mea­sures would also help de­fend the world's mul­ti­lat­eral trad­ing sys­tem and eco­nomic glob­al­iza­tion for all.

China's open­ing-up is also re­garded as an im­por­tant step to­ward “build­ing a com­mu­nity with a shared fu­ture for mankind,” a vi­sion en­shrined in the char­ter of the CPC at its 19th Na­tional Congress and China's Con­sti­tu­tion in March 2018. The vi­sion Xi pre­sented in his speech at the 19th Congress was one of an open, in­clu­sive, clean, and beau­ti­ful world that en­joys last­ing peace, uni­ver­sal se­cu­rity and com­mon pros­per­ity.” The con­cept has been adopted by sev­eral res­o­lu­tions of the United Na­tions, in­clud­ing the Se­cu­rity Coun­cil and Gen­eral As­sem­bly.

China has reaf­firmed its vi­sion and en­tered a new era of openingup just as the world is fac­ing anti-glob­al­iza­tion mo­men­tum, for­mer Chi­nese vice min­is­ter of com­merce Wei Jian­guo told Newschina. He added that open­ing up is China's own choice and a forced open­ing is not ac­cept­able.

Mov­ing Fast

On April 11, the day af­ter Xi promised to trans­late the open­ing-up com­mit­ment into ac­tion “sooner rather than later,” Yi Gang, gov­er­nor of China's cen­tral bank, laid out a timetable and mea­sures for the first big round – the open­ing-up of the fi­nan­cial sec­tor. Re­stric­tions on for­eign stakes in bank­ing, se­cu­ri­ties, in­sur­ance, con­sumer fi­nanc­ing and as­set man­age­ment would be re­duced or re­moved. Higher quo­tas would be granted to daily stock mar­ket trans­ac­tions be­tween the Chi­nese main­land and Hong Kong. The Shang­hai and London stock ex­changes would open to in­vestors from each other. These will all be re­al­ized in the next few months or by the end of the year.

On April 12, China's State Coun­cil de­clared it would re­move tar­iffs from all im­ported cancer drugs be­gin­ning on May 1. Chi­nese

Premier Li Ke­qiang called for a fur­ther re­duc­tion in the price of im­ported drugs – par­tic­u­larly cancer drugs – cov­er­ing them un­der na­tional health in­sur­ance, us­ing cross-bor­der e-com­merce plat­forms and stream­lin­ing the process of ap­pli­ca­tions for clin­i­cal test­ing and cus­toms dec­la­ra­tions.

On April 13, the 30th an­niver­sary of Hainan be­ing made a spe­cial eco­nomic zone, Xi an­nounced that the prov­ince would be­come the coun­try's largest free trade zone and, ul­ti­mately, a free trade port. It was in spe­cial eco­nomic zones that China be­gan its early re­form ef­forts with fa­vor­able treat­ment – cheaper land and less tax – for for­eign in­vestors.

In 2013, China be­gan launch­ing free trade zones, which were de­signed to at­tract Chi­nese and in­ter­na­tional in­vestors with less red tape and greater mar­ket ac­cess. These are the sand­boxes of re­form and open­ing-up. In early 2018, Shang­hai an­nounced its plans to build a free trade port in the vein of Sin­ga­pore and Hong Kong.

Xi de­scribed the de­ci­sion to make Hainan Prov­ince a free trade zone and a free trade port as an im­por­tant step in “demon­strat­ing China's de­ter­mi­na­tion to fur­ther open up to the rest of the world and pro­mote eco­nomic glob­al­iza­tion.” He in­vited in­vestors from around the world to set up a busi­ness in Hainan.

On April 14, the CPC Cen­tral Com­mit­tee and the State Coun­cil re­leased a guide­line on how to build a free trade zone and free trade port in Hainan. The prov­ince will aim to of­fer China's best busi­ness en­vi­ron­ment by 2025, and one of the world's best by 2035.

In­deed, Hainan is not the only nor the first na­tional free trade zone or port in China. But it is the largest, and more im­por­tantly, un­der­takes nearly all tasks that China as­pires to achieve in its re­form and open­ing-up in the years to come. It would en­gage or pi­o­neer in na­tional pri­or­ity strate­gies and sec­tors, in­clud­ing the Belt and Road Ini­tia­tive, high-end ser­vice de­vel­op­ment and trade, tech­no­log­i­cal in- no­va­tion, the mar­itime econ­omy, re­ju­ve­na­tion of the coun­try­side, re­form of State-owned en­ter­prises, in­ter­na­tional tourism, eco­log­i­cal pro­tec­tion, re­form of the ad­min­is­tra­tive sys­tem and so­cial gov­er­nance. Ev­ery other free trade zone or port only serves a few of these func­tions.

On April 17, China's Na­tional De­vel­op­ment and Re­form Com­mis­sion an­nulled the re­stric­tions on for­eign stakes in the sec­tors of spe­cial pur­pose ve­hi­cles and new en­ergy au­to­mo­biles, ship­build­ing and air­craft man­u­fac­tur­ing. It will also give a five-year timetable for open­ness in other sec­tors, mainly man­u­fac­tur­ing.

Fi­nance First

Fi­nan­cial sec­tor open­ness has been widely re­garded as un­prece­dented and big­ger than ex­pected. But it can­not be de­fined as a “big bang” – ex­tremely dras­tic dereg­u­la­tion – ac­cord­ing to Yi Gang. At a press con­fer­ence at the Boao fo­rum on April 11, he iden­ti­fied three prin­ci­ples of pru­dence. First, for­eign in­vestors will be treated the same way as do­mes­tic ones. They can of­fer any ser­vices in China that are not on the neg­a­tive list. Sec­ond, fi­nan­cial sec­tor open­ness will move for­ward in co­or­di­na­tion with re­forms of the yuan's for­eign ex­change rate sys­tem and cap­i­tal con­trols. Third, spe­cial at­ten­tion will be paid to pre­vent­ing fi­nan­cial risk and de­vel­op­ing a more ef­fec­tive reg­u­la­tory frame­work.

There are con­cerns that fi­nan­cial open­ness could bring more volatil­ity to cross-bor­der cap­i­tal flows in and out of China. Yi Gang said reg­u­la­tors would con­sider the is­sue and en­sure cap­i­tal flows are sta­ble and ef­fi­cient enough to fa­cil­i­tate global as­set dis­tri­bu­tion. He added that for­eign in­vestors will in­vest in China's stock and bond mar­ket and Chi­nese in­vestors will in­crease their port­fo­lios on the over­seas mar­kets.

In June, some of the big Chi­nese stocks will join the emerg­ing mar­ket in­dex of the MSCI, a world-lead­ing in­dex provider. In April 2019, the yuan-de­nom­i­nated debt se­cu­ri­ties is­sued by the Chi­nese gov­ern­ment and pol­icy banks will be in­cluded in the Bloomberg Bar­clays Global Ag­gre­gate In­dex. It means in­ter­na­tional as­set man­agers will have to in­vest in Chi­nese stocks and bonds.

Ac­cord­ing to the OECD FDI Reg­u­la­tory Restric­tive­ness In­dex, re­stric­tions to fi­nan­cial ser­vices in China were higher than the OECD av­er­age and most other de­vel­op­ing economies in 2016. Fur­ther open­ing of the fi­nan­cial sec­tor will boost do­mes­tic com­pe­ti­tion, cater for the in­creas­ingly di­verse needs of fi­nan­cial con­sumers and im­prove the in­ter­na­tional com­pet­i­tive­ness of China's fi­nan­cial in­sti­tu­tions, said Zhao Jin­ping, a re­search fel­low with the De­vel­op­ment Re­search Cen­ter of the State Coun­cil, in an ar­ti­cle for the China Eco­nomic Times pub­lished on April 16. There are also hopes that open­ing to for­eign in­vestors will pro­mote do­mes­tic re­form. Fur­ther open­ness should also be ap­plied to do­mes­tic pri­vate in­vestors, said Deng Haiqing, chief economist with bro­ker­age firm JZ Se­cu­ri­ties in Bei­jing, in an in­ter­view with the China News Ser­vice on April 12.

Chi­nese Pres­i­dent Xi Jin­ping poses with other lead­ers who at­tended the Boao Fo­rum for Asia An­nual Con­fer­ence 2018 in Boao, South China’s Hainan Prov­ince, April 10, 2018

Peo­ple at­tend a ses­sion ti­tled “Blockchain: In Plain Words and In Prac­tice” dur­ing the Boao Fo­rum for Asia An­nual Con­fer­ence 2018 in Boao, South China’s Hainan Prov­ince, April 10, 2018

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