Foreign investors have taken note of China’s easing on FDI. The US government should, too
- Dominic Ng says while Beijing’s moves do not go far enough, they have made a real difference to foreign businesses entering the Chinese market, including US firms. Trade negotiators on both sides should seize on the opportunities this presents
While China still does not have the same openness to foreign investment seen in advanced economies such as the United States, it has made significant improvements in the past three years, with positive results for foreign companies. For one, it has moved from a “positive” to a “negative” list approach.
Under the previous system, foreign firms were only allowed to invest in sectors that were on a positive list of “encouraged” sectors, and every investment required approval by the government. Those approvals were often coupled with formal restrictions (for example, requirements to enter a joint venture) or informal expectations (such as sharing technology). Under the new regime, foreign firms are now by default allowed to invest in every sector, unless it is specifically mentioned on a negative list of restricted sectors. Moreover, for sectors not on those lists, firms do not have to apply for approval any more, but are merely required to register their investments.
While there is a lot of cynicism in the foreign business community regarding the implementation of the more liberal rules, Beijing is taking those steps seriously. The best evidence is that, despite sabre-rattling by politicians and talk about decoupling, US companies are in fact expanding their investment into China.
According to China’s Ministry of Commerce, American FDI in China was up by 6.7 per cent for the period from January to September this year, compared to the previous year, and I see great appetite by US companies to increase investment in areas that Beijing has recently liberalised.
Of course, these recent steps will not be enough to resolve existing US concerns about the lack of reciprocity in market access. However, the reforms and the response by foreign companies are much needed good news amid the current doom-and-gloom outlook.
The reforms show China understands that overhauling outdated approaches to create a more level playing field for foreign companies is ultimately beneficial for its own long-term prosperity. It also demonstrates that honest reform efforts with high-level buy-in can produce real change in the marketplace. The switch to a new approach is making a tangible difference for foreign companies in the affected sectors and is changing the way those companies think about long-term prospects in the Chinese market.
The opportunities presented by China’s progress on the investment front deserve an important place in the conversation between presidents Trump and Xi. Toughness is not an end in itself: it is a means to a mutually prosperous and constructive end.
Dominic Ng is chairman and chief executive officer of East West Bank