China promises more openness to sceptical investors

China has promised foreign investors that it will be more open. But jaded by similar promises in the past, both US and EU investors remain sceptical.
Chinese President Xi Jinping promised more openness for foreign investors in China
Chinese President Xi Jinping promised more openness for foreign investors in China

China has promised greater openness to foreign investors. Jaded after similar promises in the past, they are waiting to see whether the Chinese government will match its words with effective action.

At the China International Import Expo in Shanghai on November 5, Chinese President Xi Jinping said: “I have stressed many times, the door of China’s liberalization will not close, but only open wider.”

China intends to accelerate the promulgation of new regulations which will improve the openness and transparency of foreign investment laws. Foreign and local firms in China will receive equal treatment. And the country will accelerate the pace of its negotiations with the European Union (EU) on the China-EU Investment Agreement and the China-Japan-South Korea Free Trade Agreement, Xi said.

The EU Chamber of Commerce in China is not impressed. On November 5, it stated, “Much of the content in the speech delivered by President Xi Jinping echoed what was previously announced in April. The vast majority of the commitments made by the Chinese government remain unrealized. This constant repetition, without sufficient concrete measures or timelines, has left the European business community increasingly desensitised to these kinds of promises.”

At a roundtable for multinational corporate leaders in the Chinese city of Tianjin on November 1, Chinese Commerce Vice Minister Wang Shouwen said that China is amending its laws on foreign companies but gave no details, reported Chinese state news agency Xinhua. 

The lack of “any meaningful improvement” for US companies in China may cause the US government to adopt a harsher economic stance towards China, the American Chamber of Commerce in China warned in its 2018 China Business Report released on July 30.

In recent months, US President Donald Trump has slapped tariffs on over $250 billion of Chinese goods. On October 29, Trump told media that the US would “make a great deal with China”, but warned of tariffs on more Chinese goods if he did not get the deal he wanted.

The business associations of the EU, Japan, Britain and the US aired their concerns at a meeting held by the National Development and Reform Commission (NDRC), the Chinese government body overseeing economic reform, on October 29. At this meeting, the NDRC said the problems raised by these foreign business chambers were valid and the Chinese government “approved” of their suggestions.

The NDRC told various Chinese government agencies to take heed of the suggestions of these foreign business chambers, and to come up with specific reform policies to improve the business environment in China.

At the same meeting, representatives of the EU Chamber of Commerce in China warned that China’s position as the top future destination for EU investment is being eroded, an EU chamber spokeswoman told FinanceAsia. Reasons for declining EU investor confidence include capital controls, rising labour costs, administrative inefficiencies and market access restrictions.

A survey of 532 EU companies suggests that the share of EU companies that list China as their top choice for future investment had decreased to 17%, down from 20% last year, according to the Business Confidence Survey 2018 of the EU Chamber of Commerce in China. Published in June, the poll also found that 48% of EU companies had found doing business in China more difficult over the past year while 46% believe that regulatory barriers in the country will increase over the next five years.

William Zarit, chairman of the American Chamber of Commerce in China, told FinanceAsia, “We will have to wait and see how quickly real reforms can be put in place, and how effective they will be.”

An increasing majority of members of AmCham China are saying that inconsistent regulatory interpretation and unclear laws are the biggest challenges to doing business in China, Zarit said. “Specific reforms that members would like to see include greater access to officials and consistent implementation of national policies at the local level.”

“According to our annual Business Climate Survey, the best that can be said is there appears to be a bottoming out of sentiment from the very low levels plumbed over the past few years,” Zarit added. “An astounding 75% of members still feel increasingly unwelcome. Negative feeling is shaped by protectionism and intensifying local competition.”

In that survey, which polled 411 US companies in October and November last year, the 75% who felt increasingly unwelcome in China was still an improvement from the previous year, when that number stood at 81%. 

Vice Minister Wang said that China has been simplifying procedures for foreign investment.

Nonetheless, AmCham’s 2018 China Business Report said that although China has been improving its business environment via operational efficiencies such as simplified customs processing, “progress on regulatory issues such as financial liberalization, investment restrictions and barriers to trade is woefully little”.

In contrast to the pessimism of EU companies, the AmCham China’s report found that the percentage of US companies rating China as their top investment priority rose to 27% this year from 24% last year, while 61.6% plan to expand their investment in China in the future. For this report, 434 US companies were surveyed in April and May.

Douglas Sheridan, a Canadian businessman, remains bullish on China. Sheridan, who shuttles between Canada and China, told FinanceAsia, “It is easier today than ever for foreign firms to operate [in China], and whilst difficulties still exist, the game rules are known and consistent.”

Currently, there is much more opportunity for foreign players to invest in and partly own Chinese businesses engaged in consumer products, said Sheridan. He is involved in the footwear sector as well as apparel manufactured in China.

Although global foreign direct investment (FDI) fell 41% in the first half of the year to $470 billion, according to the United Nations Conference on Trade and Development, China remains a winner. It saw FDI rise 6% in H1 to $70 billion. 

¬ Haymarket Media Limited. All rights reserved.