China economy

What can Xi offer to woo foreign investors? Fair play, say Beijing experts

Protecting intellectual property rights and creating a level playing field should be top priority, researchers tell forum

PUBLISHED : Tuesday, 17 October, 2017, 9:37pm
UPDATED : Wednesday, 18 October, 2017, 8:42pm

China should do more to protect intellectual property rights and create a level playing field for foreign companies to lure investment from overseas in the coming years, government researchers say.

Speaking at a forum organised by a state think tank in Beijing on Tuesday, they said the authorities were aware that long-term capital inflows had stagnated and of the growing complaints from the foreign business community about difficulties they had encountered in China.

The comments came on the eve of the ruling Communist Party’s congress, at which President Xi Jinping will further cement his power and begin his second five-year term. Attracting a steady flow of long-term capital, and advanced technology, is important for China as it tries to move up the global value chain. Foreign direct investment is also seen as a barometer of the outside world’s confidence in China’s prospects under Xi.

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The main sources of discontent for foreign businesses are policies that favour local companies – such as Made in China 2025 to revive the manufacturing sector – and pressure to hand over trade secrets.

Meanwhile as China gets richer, the country is no longer the top choice for foreign companies seeking cheap labour.

Zhang Jianping, a senior researcher with the Ministry of Commerce, told the forum that up to 70 per cent of foreign direct investment inflows into China now ended up in the service sector, while the remaining 30 per cent went to manufacturing, but to the high-end segment.

He said earlier falls in FDI inflows had been “alarming” for China, and that the authorities should improve the transparency of rules to make it easier for foreign companies to do business in the country.

China attracted US$72 billion in the first seven months of the year, down 6.5 per cent from the same period of 2016, according to the commerce ministry.

Mainland China’s annual FDI has hovered around US$120 billion in recent years – with two-thirds of that coming from Hong Kong.

That amount is less than half of the FDI that goes to the United States.

Despite promises from Beijing to further open up this year, the Organisation for Economic Cooperation and Development lists China as one of the most restricted markets globally. China still applies restrictions and bans on foreign investment across 65 sectors.

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“In the next three decades, the battlefield will be market-oriented reform and opening-up in high-end manufacturing and hi-tech sectors,” said Zhang Yansheng, a senior researcher with the China Centre for International Economic Exchanges, which organised the forum.

Meanwhile, China analyst Scott Kennedy, from the Centre for Security and International Studies, said the authorities may loosen foreign ownership caps on joint ventures in sectors where Chinese firms already had a competitive edge when US President Donald Trump visits Beijing next month. Kennedy made the remarks at an event hosted by the Council on Foreign Relations in Washington on Monday.

But former vice commerce minister Wei Jianguo told the forum in Beijing that improving protection of intellectual property should be the top priority to improve the business environment for foreign companies.

“The government should be offering equal treatment in terms of rights, rules and chances to do business for state-owned enterprises, private firms and foreign companies. That is the key to realising the potential of opening up,” Wei said.

“It’s like we’ve got all the expressways in place and now we need to come up with the rules. We should bring in tougher penalties for IP infringements and do more to enforce the law. The government needs to streamline these rules and regulations.”

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The researchers expected there would be more efforts to open up following the party congress and Trump’s visit.

“As the world’s second-largest economy – and given its growing middle-income population, which is expected to reach 500 to 600 million [in the near future] – it is unlikely that foreign businesses will turn their backs on China’s market,” Lu Jinyong, a professor at the University of International Business and Economics, said.