When the presidents of the US and China Donald Trump and Xi Jinping meet at the G20 summit at the end of this month, the commercial tariffs are going to be the focus of the agenda.
During the Asian-Pacific Economic Cooperation Forum at the weekend, US Vice President Mike Pence threatened to double the tariffs imposed on Chinese goods worth $250 billion, despite a list of trade concessions offered by the Chinese government in recent days. However, trade is not the only dimension of economic relations between the US and China, nor is it the only opportunity to realise Beijing’s interests.
One area that gets more attention is China’s attitude towards foreign investors. China has recently made tangible progress in further opening of its economy to foreign investment and US companies such as Tesla and ExxonMobil are among the first to gain benefits. This aspect of US engagement with China is crucial to achieving the free, fair and reciprocal relations which Washington seeks and it deserves an important place at the negotiating table.
While China does not yet have the same openness to foreign investments observed in advanced economies such as the United States, Beijing has made significant improvements over the last three years shows the positive results for foreign companies. One of them is the move from “positive” to a “negative” restrictions list.
Under the previous system, foreign firms have been allowed to invest only in sectors that are part of a positive list of “encouraged” sectors and each investment requires government approval. These approvals are often combined with official restrictions (e.g. requirements for entry into a joint venture) or informal expectations (such as sharing technology). Under the new system, foreign companies are currently allowed to invest in all sectors unless they are specifically mentioned in a negative list of limited areas. Moreover, for sectors not listed in these list, companies should not apply for approval but they are obliged to register their investments.
The second significant change was a significant reduction of the sectors in the negative list, decreasing from 93 in 2016 to 63 in 2017 and only 48 in 2018. Many observers are dissatisfied with this still large paper, but the situation has improved in a number of sectors that are relevant to foreign companies, including the production of electric cars, aviation production and certain financial services.
And the best demonstration of the success of the new regulations is the rise of Shanghai.
Since the start of the reform and opening policy, Shanghai has attracted 238 billion dollars of foreign investment. Thanks to this funding, 95 000 projects in the city have been realized, and only during the last year the largest foreign companies there have earned revenues of nearly $3 trillion, representing a 19 percent growth compared to 2016. Their exports and imports also increased by 10 percent on annual basis, reaching $170 billion in 2017.
In 2017, companies with foreign participation contributed to the formation of over a quarter of the city’s economic production and over one third of the tax revenues. Studies also show that more than half of them consider China as the most important external market.
