China’s pledge to open its market for trade and investment must be honoured on the ground

Michael Clauss says recent moves by Beijing to ease some regulations for foreign investments are welcome, yet follow-through on the ground is lacking. Worse, the rules appear to have tightened in some other areas

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Time and again, hopeful signals of further opening from the top seem to fizzle out when they reach the administrative level. Illustration: Craig Stephens

Published: 5:31pm, 4 Sep 2017Updated: 7:30pm, 4 Sep 2017

Against international cross currents that are increasingly unfavourable to globalisation, China has achieved a lot of goodwill in the global political arena by supporting open trade and investment. At the recent G20 Summit in Germany, China played an important role to salvage a pro-open-trade consensus among the leading economies of the world. On the national stage, there are commitments galore by the state leadership to improve market access and reduce restrictions for foreign investment.

Yet, the majority of foreign companies I talk to have observed an intensifying trend in the opposite direction. Time and again, hopeful signals of further opening from the top seem to fizzle out when they reach the administrative level.

Two State Council documents issued in January and August highlight the awareness for these shortcomings and ask ministries to attract more foreign investment and abolish impediments to business activities of foreign companies. We certainly welcome the proclaimed good intentions and agree with the State Council that more has to be done on the ground.

Xi Jinping woos foreign firms as investors look beyond China

Foreign businesses in China still encounter too many arduous and even frustrating barriers. Plans by the General Administration of Quality Supervision, Inspection and Quarantine for an expensive general certificate for all food imports, irrespective of health risks, are a prime example. The proposed regulations threaten to make imports for smaller and medium-sized companies unprofitable and therefore meaningless.

A woman shops for groceries at a supermarket in Beijing. China is set to require stricter certification for all food imports, irrespective of health risks. The proposed regulations threaten to make imports for smaller and medium-sized companies unprofitable. Photo: Reuters

Foreign companies dissatisfied with China’s slow progress in opening up investment markets

Another bellwether for openness is its 2017 catalogue for foreign investments, which has just been published. Our companies have been waiting for years for the removal of investment restrictions such as joint venture obligations, equity caps and in other areas. The new measures contain a number of welcome changes but fall short of expectations. Large areas of the Chinese economy remain completely shut to foreign investment, especially in services, the fastest growing and by far largest part of the economy. According to the new catalogue, areas in the service sector that remain closed include the domestic postal services and almost the entire media, entertainment and publishing industry. In the latter, the rules even appear to have been tightened.

Germany’s and China’s success as economies hinges on the equitable, fair and free flow of investments

The most important restricted areas remain restricted. Again, services stick out: equity caps for banks for foreign investors between 20 per cent and 25 per cent remain unchanged, so do those for insurance (50 per cent). The same applies to the car industry, except fully electric cars: the decades-old 50 per cent equity cap for original equipment manufacturers and limitations, only allowing two joint ventures for passenger cars, remains in place.