China's diplomatic double-talk on FDI needs calling out

China says it welcomes private capital – better make the FDI rules clear then.

2018 marks the 40th anniversary of the launch of China's reform and opening-up, but foreign investors are still restricted from swathes of industry in the world’s second-largest economy.

China ranks just 78th for ease of doing business and 130th for trading across borders, according to the World Bank.

Premier Li Keqiang used his March 5 work report to the National People's Congress to reiterate the need to further open the market to foreign investors. FinanceAsia welcomes the sentiment especially in the face of trade mounting tensions with the US, but is waiting for the words to be meaningfully put into practice.

Investors are eyeing the assets of China’s companies such as Anbang Insurance, Wanda and HNA, after a debt-fueled acquistion spree landed them in trouble with officials keen to rein in leverage across the country’s financial system.

In the case of Anbang, the China Insurance Regulatory Commission (CIRC) formally took custody of the erstwhile high-flying insurer on February 23. The watchdog indicated it would entertain offers for Anbang’s assets, a grab bag of hotels to banks.

So, foreign private investors have a green light to bid?

It would seem so after China's Vice Finance Minister Zhu Guangyao announced plans to relax restrictions on foreign direct ownership of Chinese financial institutions during US President Donald Trump’s visit in November.

For instance, Zhu said an overseas investor would be able to own up to 51% of a life insurer, up from 49%. He added China would completely remove the cap after five years.

The catch: it remains unclear when China will implement the changes. Investors and their lawyers still keenly await a detailed draft of the proposed rules.

Another hiccup. There is confusion among the ranks of those Chinese bureaucrats on whose chops such deals depend. The backlog of mergers and acquisitions awaiting a decision is growing longer, regulators and investment bankers say.

This is partly because the architecture of China’s financial regulation is under review. The watchdogs are gradually being coalesced into a super regulator; the prototype appears to be the Financial Stability and Development Committee created in July.

To boot, a merger of the China Banking Regulatory Commission and the CIRC is on the cards according to Chinese media. 

More broadly, foreign investors’ bugbear is the periodic disappearance of key decision makers.

President Xi Jinping’s anti-corruption campaign has led to the punishment of an unprecedented 1.5 million officials. The purge claimed the scalp of CIRC chairman Xiang Junbo, who lost his job in April 2017 for "serious disciplinary violations", a phrase that usually refers to graft. Insurance companies levered up under his watch. He has not yet been replaced.

Overweening political pressure looks set to continue. The Communist Party is extending its grip on power, eliminating the separation of party and state to a degree not seen since Mao Zedong’s rule.

This is all part of Xi’s grand scheme, which appears to have won widespread acquiescence in China given he has been able to scrap the two-term limit for the presidency. 

So if China really does wants to attract private investors to help improve corporate governance, fund its ‘Belt and Road Initiative' trade scheme and improve profitability at sprawling state-owned enterprises, it is time to clarify the rules and play by them.
 

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