The future of foreign investment
China’s further opening-up following 2018’s two sessions set to drive international business growth
China’s ongoing reform and opening-up policy is bound to go from strength to strength, but still needs to take gradual steps, while expectations of an equal playing field for foreign firms doing business in China should be realized, experts and business leaders said at the Global Times Leader RoundTable held on Thursday in Beijing.
The event, which was co-hosted by the Global Times and Beijing-based public affairs consultancy North Head, was focused on discussions addressing foreign direct investment (FDI) in China – reassessing why, where and how to keep investing in China and finding the most suitable future business model on the occasion of the 40th anniversary of China’s reform and opening-up policy.
Experts and business leaders agreed that China’s opening-up to foreign investors over the past four decades has enabled some remarkable achievements and that China is determined to attract even more FDI in the future.
But meeting participants also raised concerns related to the implementation of further reforms and openingup policies, which have encountered some difficulties at the local government level, as well as to the fact that China is expected to further lower the threshold for foreign capital.
The last mile
The next level of China’s high-quality and sustainable economic development requires high-quality reform and opening-up strategies, which are also essential to promoting the former, said Wei Jianguo, deputy director of Beijing-based think tank the China Center for International Economic Exchanges, who was also a former vice commerce minister.
“I’ve noticed that a lot of recent discussions have been around the investment environment in China, with some complaining that the environment is not as good as before while citing various other reasons despite all the efforts made by the government,” Wei noted.
“I think the key factor related to this issue lies in the fact that China has not been doing enough during ‘the last mile’ of the reform and opening-up process,” he said, using the phrase “the last mile” to reference the promise for more foreign capital proposed during the 18th National Congress of the Communist Party of China in 2012, which highlighted that equality between Chinese and foreign firms is “right, rule and opportunity.”
“I believe that the central government or policymakers have realized the above issue and have expressed views clearly during recent public occasions that they will honor that promise,” Wei said.
Ning Jizhe, deputy head of the National Development and Reform Commission (NDRC), China’s top economic planner, stressed during the two sessions annual top legislative and advisory meetings that the country will ensure that domestic and foreign firms compete on an equal footing by offering equal opportunities in the “Made in China 2025” strategy and projects, including science and technology, government procurement and standards setting.
“In terms of China’s treatment of foreign enterprises and the policy to attract foreign capital after the two sessions, you’ll possibly find three key changes in my opinion: major organizational reform including the NDRC, the Ministry of Commerce and other departments; ruling out bureaucrats who cannot keep up with the timing to further open up; and more efforts to improve legislature, particularly with regard to intellectual property protection and tax policy,” Wei noted.
Based on the above changes, Wei said he has full confidence that China can build the world’s best business environment over the next five to 10 years.
Market-driven and patient
During Thursday’s RoundTable forum, most multinational enterprise representatives expressed that a longterm and market-led strategy is the key to surviving and thriving in the Chinese market, where competition has become ever fiercer, although they also expressed the desire for support from the government.
Steven M. Chapman, group vice president of Cummins China and Russia, said at the forum that Cummins, a US-headquartered company, collaborates with Chinese partners to develop and service a broad portfolio of power solutions to customers.
“Reflecting on doing work here or in Russia and India, we have been relatively successful by doing joint ventures [ JVs] with local customers… So where is the easiest [place] for us to do our business and grow our market? Frankly, it’s here,” Chapman said.
As Chapman believes, the most successful business model is to provide the products local customers want. “To me, it’s more market-led rather than the government policy.”
The managing director of North Head, John Russell, noted that “while 2018 is the 40th anniversary of China’s opening-up, the advent of the ‘New Era’ has resulted in many multinational companies [MNCs] reassessing their operations in China for future resilience. Market conditions are rapidly changing and competitive landscapes are becoming more challenging.”
Facing this increasing competition from both domestic and foreign firms, some MNCs are refocusing on core strengths, while restructuring their operations in order to deepen localization, speed up decision-making and increase agility to cope with evolving market conditions, Russell said.
This can entail embracing innovative approaches such as licensing, franchising and seeking strategic partnerships to speed up market penetration in new geographies such as lower-tier cities and markets along the routes of the China-proposed Belt and Road initiative.
“Previously joint ventures were considered as burdens and restrictions on FDI, but can now, with astute choice of partners and thoughtful strategy, be configured to create sustainable competitive advantage for coming decades,” concluded Russell.
Future business model
China will expand access to foreign investment in sectors like financial services, telecommunications, medical services, education, eldercare and new-energy vehicles, Chinese Premier Li Keqiang said in the Government Work Report delivered to the opening session of the 13th National People’s Congress on March 5. In such sectors as advanced manufacturing, financial services and hightech, better market access can be offered in China, according to David Frey, a partner of KPMG China.
“Regarding future business models, I think foreign companies that are prepared to succeed in the future in China are those willing to adapt and entertain JV models and create partnering models that go beyond the traditional models, since creativity is much demanded by Chinese enterprises,” Frey noted.