China Economy

Xi Jinping woos foreign firms as investors look beyond China

Government stepping up rhetoric to attract foreign investment, amid rising costs, criticism of restricted access to Chinese markets and more competition overseas

PUBLISHED : Tuesday, 18 July, 2017, 4:32pm
UPDATED : Tuesday, 18 July, 2017, 11:12pm

President Xi Jinping says the government should create a “stable, fair, transparent and predictable” environment for foreign businesses operating in China, stepping up Beijing’s rhetoric to woo foreign business as the country is gradually losing its attractiveness to overseas investors.

In rare praise for the role of overseas businesses, Xi said foreign money has “helped reasonable resource relocation, promoted market-oriented reforms and played an important role for China’s economic development”, the state-run news agency Xinhua reported.

As such, China must do more to retain and attract foreign investment, he said.

Xi made the comments at the latest gathering of the central leading group on finance and economic affairs, according to Xinhua.

It was the first time the Communist Party’s main economic policy decisionmaking body has specifically discussed China’s strategy in attracting foreign investment since Xi came to power five years ago.

Foreign companies dissatisfied with China’s slow progress in opening up investment markets

China, once the darling of global investors, is fading from favour due to its rising costs and excessive red tape. Foreign firms operating on the mainland have complained about restricted access to Chinese markets and regulations they say favour domestic companies.

The pressure is also on Beijing to attract and even to retain foreign businesses as competition for investment is increasing from overseas.

This includes President Donald Trump’s offering tax cuts to businesses in the US and Prime Minister Narendra Modi’s economic reforms in India.

While foreign direct inflows into China dropped slightly last year to US$126 billion, inflows into India rose eight per cent to US$60 billion in the fiscal year ending March 2017.

In the first half of this year, FDI inflows into China fell by 0.1 per cent if measured in yuan, Chinese Ministry of Commerce data shows.

Mats Harborn, the president of the European Union Chamber of Commerce in China, said at a media briefing last week that Beijing’s rhetoric about opening up its markets was “not matched by concrete implementations”.

One in five US businesses in Shanghai are redirecting investments planned for China to other destinations, according to a survey by the American Chamber of Commerce in the city published last week.

Xi said China must grant “national treatment” to foreign businesses, improve intellectual property rights protection and gradually open up its domestic financial sector to foreign investors.

However, it remains to be seen how serious China is on acting on its promises.

In one example, China promised to open its market to foreign banks when it entered the World Trade Organisation in 2001, but the combined market share of overseas lenders is still only about two per cent.

Beijing doubles down on luring foreign investors back to China, but will they come?

Shen Jianguang, chief economist at Mizuho Securities Asia, said Beijing was trying to comfort American investors and raise its bargaining chips ahead of the China-US comprehensive economic dialogue due to be held in Washington on Wednesday.

China’s opening of its markets to American beef and soybeans have helped remove the risk of a trade war with the US and Beijing’s opening of onshore financial markets will generate new deals for American businesses, Shen said. “They may not be just words this time,” he added.

As China’s economy matures, the country will become more selective about foreign investment, according Yu Miaojie, deputy dean at Peking University’s national school of development.

“China wants technology more than capital,” said Yu. “You can’t expect results overnight. China’s opening up is always orderly and step by step.”