The Shorter the List, the Greater the Opportunity

Three administrative documents released by the Chinese government, Special Administrative Measures on Access to Foreign Investment (2019 edition), Free Trade Zone Special Administrative Measures on Access to Foreign Investment (2019 edition) and Catalogue of Industries for Guiding Foreign Investment, came into effect on July 30, 2019. The latest revision includes new opening-up measures in services (including transportation, value-added telecommunications, infrastructure and culture), manufacturing, mining and agriculture, allowing full foreign ownership in more sectors, with no additional limits added. Three changes highlight the new negative list.

First, China’s agricultural sector will be more open to accelerate production and improve quality of agricultural produce to meet rising domestic demand. Despite its historical status as a major agricultural country, China’s agricultural sector is not very competitive. Increasing incomes of Chinese people have resulted in skyrocketing demand for quality agricultural goods, while supply has lagged. In the context of rural revitalization strategy, wider opening to foreign investment will exert greater pressure on China’s agricultural enterprises so that the technology applied in agricultural production processes will continue to improve due to competition. At the same time, advanced agricultural technology and agricultural management models can also be introduced to promote comprehensive cooperation in fields like skill training, crop disease prevention and personnel exchange.

Second, the service industry will be less restricted to foreign capital. Contrasted with the manufacturing industry, the pace of opening up of the service industry has been relatively slow, and its development lags far behind public demand in the middle-income era. On this latest negative list, many areas such as domestic shipping agents, gas supply in cities, heat pipe networks, performance brokers, multi-party communications, store-and-forward and call centers no longer require the enterprises to be controlled by Chinese nationals. This offers tremendous opportunities to foreign investors. For example, since the beginning of this year, introduction of foreign investment in the high-tech service industry has increased by 68.9 percent. With new policies of opening up implemented in banking, insurance and logistics industries, not to mention trade, the growth of foreign investment in China will be even faster.

Third, China’s opening up of its 5G market will bring surprises. The Chinese government just officially released 5G commercial licenses in June. On the recent negative list, restrictions on foreign investment access related to 5G have been removed. The move demonstrated China’s confidence in its 5G technology and proved that China’s 5G is not closed but open and integrated. China has established technical cooperation mechanisms with major countries globally, and major international communication equipment manufacturers have participated in China’s 5G trials and construction work. The current situation foreshadows openness in the internet era, which is necessary for more mutually beneficial cooperation.

From this negative list, we see China’s determination and sincerity to reform itself, expand opening up and promote mutual beneficial cooperation and economic globalization. With foreign investment entering more fields, free trade zones will play an even more important role as the engine attracting foreign investment. And dividends of reform will further expand, injecting new energy and impetus into the world economy.

New technologies such as artificial intelligence, big data, and cloud computing are rapidly changing living and working environments but pose new challenges to governments of all countries. The negative list represents the management concept of “all behaviors without legal prohibition are allowed.” The government must not only increase decentralization and reduce intervention in the market, but also improve management concepts and accelerate the pace of building a service-oriented government. After the 18th National Congress of the Communist Party of China, the Chinese government clearly released the policy of “promoting reform through opening up” to exert a more comprehensive and effective role of opening up in driving domestic reforms while at the same time promoting reform of global governance in a more fair and just direction.

Chinese President Xi Jinping pointed out at the G20 summit in Osaka that the world should embrace development opportunities with greater openness, seek mutual benefit with better cooperation, and guide economic globalization in the right direction. Chinese Premier Li Keqiang pointed out at the Summer Davos held in Dalian that the world should stick to economic globalization and promote trade and investment liberalization and facilitation. Even while the momentum of economic globalization has been seriously ravaged in recent times, China’s understanding of economic globalization as a general trend has not changed. Shortening the negative list is not forced by the outside world, but a new initiative for China’s opening up.

As the negative list becomes shorter and shorter and foreign investment restrictions fewer and fewer, China will continue to increase openness and transparency for foreign investment, create a more open environment for foreign investment and accelerate the integration of high-quality foreign capital with the Chinese market and industries. Foreign companies and capital will embrace not only an increasingly large and open market, but also a constantly improving investment environment. 

Co-author Bian Yongzu is deputy director of the Industrial Department of Chongyang Institute for Financial Studies at Renmin University of China. Co-author Zeng Qingming is an intern research fellow with Chongyang Institute for Financial Studies.