Jake's View

Don’t expect much from China’s offer to open more sectors of its economy to foreigners

The World Trade Organisation is not effective and other international trade initiatives have been heavily politicised, so it is unlikely that Beijing will be leading moves towards any real reform of foreign direct investment

PUBLISHED : Saturday, 19 August, 2017, 11:26pm
UPDATED : Sunday, 20 August, 2017, 1:19am

... foreign firms operating in China have expressed growing frustration over limited access to markets and government policies that they say discriminate against overseas companies.

SCMP, August 18


You are forgiven if you are puzzled by the initials WTO. Few people any longer have reason to burden their brain cells with the knowledge that this stands for the World Trade Organisation.

The WTO was a fine dream when it was formed 22 years ago as a successor to a talk shop called the GATT Uruguay Round. Diplomats round the world thought GATT Uruguay a big success in breaking down trade barriers and thus formalised it as the WTO.

And then it all stopped. The WTO struggled briefly back into the news in 2001 when China demanded that it be allowed in as this was a big boys club and China had risen to the big boys league, but then things went quiet again.

The move towards a worldwide agreement on loosening trade barriers has failed. The effort now consists only of bilateral agreements between two countries at a time, or as purely political initiatives. Witness the Trans Pacific Partnership, a US scheme to exclude China, and the Belt and Road Initiative, a tit-for-tat China scheme to exclude the US.

Beijing cuts list of restrictions on foreign direct investment in free-trade zones

The consensus (outside China) is that China carries its share of the blame for the WTO failure as it has failed in practice to meet its WTO obligations.

If this is true, and the charge is not entirely without foundation, it is largely because the mountains are still high and the emperor is still far away.

The will of Beijing tends to be less than perfectly carried out in the provinces, particularly when provincial governments see their own investments at risk from foreigners.

Thus I am not hugely impressed by the latest directives from Beijing that more sections of the economy be opened to foreign investors. Make that work in Kunming first, say I, and then tell us about it again.

What is more, this directive was made in direct response to criticism by US President Donald Trump about unfair trade practices by China. Let’s see the Donald first prove that he has some understanding of the facts here. So far he has done little more than parrot the usual anti-China rant.

Foreign investment in China is ‘not a level playing field, but a one-way street’

The leadership in Beijing has been through this one before with Washington and its usual countermove is a line of talk, followed by a few high profile but not greatly significant concessions. We have the line of talk now. What ho the concessions?

I also have the evidence of the chart. Foreign direct investment into China has declined steadily over the last 10 years as a percentage of China’s gross domestic product. But if this is an offence, what do we make of Japan’s comparable anti-foreign investment stance. Has the Donald mouthed any rants at Japan?

In fact, only over the last two years have the equivalent figures for US FDI inflows been any higher than China’s. Just who keeps foreigners out then?

Of course, what we may have in these FDI inflows to China is nothing more than laundered mainland money taken out and funnelled back in so that it can appear as foreign when it so wishes. But, hush, hush, hush. Hong Kong is the laundry shop.

With the WTO dead, however, and other international trade initiatives heavily politicised, I cannot see Beijing leading the move towards any real reform.

For the moment, call it talk.