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After losing to India in FDI, China opens up economy more

After losing to India in FDI, China opens up economy more
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China, which last year lost the top position as an investment destination to India, has now opened up more sectors for foreign investors to catch up in the race. It is offering a slice of tightly controlled segments like public transport and railway equipment to foreign players besides cutting down the number of restrictions by a third from 93 to 62.

But what prompted Beijing to bite the bullet despite resistance from state-owned enterprises (SOEs) is not just slipping numbers of foreign direct investments. It is worried about US President-elect Donald Trump using China’s partially closed market as a reason to launch negative trade actions. Chinese authorities are trying to pre-empt adverse action from Trump, who has accused China of unfair investment practices resulting in the “theft of American jobs”.

Trump’s antagonism for China might be an opportunity for attracting more FDI in India, observers said. But a lot would depend on effects of the demonitisation decision on foreign investments. The China challenge is not any more than last year. Commerce minister Gao Hucheng admitted on Monday that foreign direct investments grew at a slower rate of 3.8% this year compared to growth of 6.4% seen in 2015. Whether India will manage to retain the top slot this year remains to be seen.

“US-China commercial relations are in for a rough ride in the coming months, as the Trump administration aggressively pushes China to open its markets further to American imports and investment and applies a more critical eye to Chinese investments in the US,” Scott Kennedy, deputy director of Freeman Chair in China studies at the Washington-based Center for Strategic and International Studies, told TOI.

India surged ahead of China after its FDI inflows slipped 23% to $56.6 billion last year. “The big FDI story of the past year is India. After a long period of trailing behind China, the south Asian country is now racing past its formidable rival. India was the highest ranked country by capital investment in 2015, with $63 billion worth of FDI projects announced,” said Courtney Fingar, head of content with London-based fDi Intelligence while releasing its 2016 report.

China’s National Development Reforms Commission said that the purpose of opening new doors for foreign investors are to “improve transparency of policy-making” and “let foreign capital play a positive role in China’s economic development, industry transformation, and reform and innovation”. Chinese experts regard the decision as bold because of a terrible slowdown in the Chinese economy and the worldwide trend of protectionism.

But China is aiming at bigger goalpost, analysts say. It is trying to persuade the World Trade Organization to grant China the coveted status of market economy. Beijing says it had been promised by the WTO that it would automatically gain the status after completing 15 years as a member, which it did this month. But the US is determined to resist the move, and the European Union is setting up its own hurdles in China’s path.

Beijing is furious that its position as the world’s second biggest economy is being ignored by the Western world. But it would not want to leave any stone unturned.

Opening up new economy sectors for foreign investments is meant to prove that China is run by free market principals.

An important question is whether the rule change is for real. Some analysts think it has no more than cosmetic value because foreign players face a lot of difficulties on the ground.

“China has only superficially opened up more sectors to foreign investment. The broader environment is still highly restrictive, with wide swaths of the economy either off limits to foreign investors or with ownership caps that require foreign investors to engage in joint ventures with Chinese partners,” Kennedy said.

Foreign businesses are unlikely to lap up the new opportunity thrown up by the latest market opening measures. This is evident from surveys of member companies conducted by the American Chamber of Commerce in China and European Chamber of Commerce. The surveys revealed that most of the members are not interested in additional investments and business expansion during this slowdown period in China.

Besides, Washington has already begun to resist Chinese investments and Beijing is getting ready to retaliate. US President Barack Obama recently blocked a Chinese company’s purchase of German chip-equipment manufacturer Aixtron on national security grounds. The US Trade Representative also put an online shopping site of China’s Alibaba Group on a blacklist of “notorious marketplace” for selling counterfeit goods.

ARTICLE SOURCE: Times of India

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