Editorial | Onus is on Beijing to create a level playing field for foreign firms

Beijing may look powerful to the outside world, but local officials often enjoy a great deal of leeway in the way they follow or ignore orders from the central government. Under pressure from the American trade war, the top leadership in China has been pushing hard to get local authorities to treat foreign businesses equitably. A new foreign investment law has been rushed through the legislature to meet the demands of Americans and Europeans to protect the interests of foreign firms and investors and end discrimination. But it is easier to legislate than to enforce.

In response, Beijing has launched a campaign to name and shame dozens of local governments for mistreating foreign businesses. As two of the world’s largest economies are close to reaching a trade deal, the campaign is the latest effort to woo overseas investment back into the country. In its quarterly report, the National Audit Office has singled out 45 local authorities for violations against foreign business interests such as levying unauthorised fees and inducing delays in granting trade licences. For example, the Hunan provincial government was criticised for demanding unauthorised service charges from 46 foreign businesses totalling 4.77 million yuan (HK$5.57 million). Shanxi, Hunan, Inner Mongolia and Ningxia were also cited for failing to complete foreign business registration within the required period.

Beijing needs to show local governments that it means business. It also needs to demonstrate such commitment to foreign business interests and governments, especially Washington. The US-China Business Council has been especially vocal in calling for the break-up of state-owned monopolies, which close off up to 45 per cent of the domestic economy to foreign investment and private domestic firms.

The trade war has partly accelerated the shift of foreign industries and businesses away from China. Foreign direct investment rose 3 per cent to US$21.7 billion in the first two months of this year, according to the Ministry of Commerce. However, the number of newly registered foreign enterprises dropped 26.4 per cent to 6,509 in January and February from the same period last year.

Beijing has its work cut out in trying to create a more level playing field for foreign interests. There is, however, some early indication of success. In a global survey of countries and their domestic environments for doing business by the World Bank late last year, China moved up 32 places to 46th. The new law prohibits forced technology transfers, and bars Chinese officials from leaking commercial secrets obtained from outside sources. Intellectual property protection has been a key demand of Washington to end the trade war. Beijing must now show it will keep its end of the bargain.