China to Cut Red Tape to Boost Foreign Investment

EghtesadOnline: China has vowed to cut red tape and ease rules for overseas investors in a bid to boost the economy and counter a decline in private investment.

News ID: ۷۷۰۳۴۴

13 October 2016

At an executive meeting of the State Council, China’s cabinet, over the weekend, Beijing said it would encourage investment in the medical care, education, sports and culture sectors and grant provincial governments more authority to approve projects not explicitly forbidden, according to the official Xinhua News Agency.

These include projects related to container terminals, vehicle engines, urban transportation and inland waterways, it added.

“We hope that China will remain an attractive destination for foreign investment,” said Premier Li Keqiang. “We need foreign investment for economic growth.”

Some 95% of investment registration procedures will be cut under the new process, the Chinese government said.

But foreign companies say the changes don’t go far enough. “These measures clearly fall short of the significant liberalizations needed to reinvigorate foreign investors’ moderating confidence in the China market,” said Jake Parker, vice president of China operations with the US-China Business Council, which represents over 200 American companies doing business in China.

Growing Concerns

Foreign business groups in China have voiced growing concern about unclear laws, perceived anti-foreign sentiment and industrial overcapacity. A survey by the American Chamber of Commerce in China earlier this year found 77% of respondent companies felt less welcome than they did a year ago, compared with 47% in 2015 and 44% in 2014, although most companies said they would remain in China.

“The important thing is the implementation,” of new investment rules, said James Zimmerman, the chamber’s chairman, who called for “fair, transparent and uniform application” of the law.

At the executive meeting on Saturday, China also vowed to use investment rules to meet broader environmental and economic objectives.

Beijing said it would block “in principle” any new factories making gasoline-powered vehicles. The nation is grappling with a serious air-pollution problem. It also vowed to block new projects in industries suffering from overcapacity, such as steel, coal and aluminum.

EU Duties on Steel Unfair

China has faced growing criticism that Chinese steelmakers are selling goods overseas at prices below the cost of production. Beijing has vowed to cut 100 million metric tons of steel production over five years, although industry analysts say this would only pare about one-third of current excess capacity.

On Saturday, China’s Commerce Ministry expressed concern over new duties on Chinese steel imports imposed two days earlier by the European Union, calling the EU’s investigation “unfair and unreasonable.”

The duties announced on Friday are the latest in a line of trade defenses set up against Chinese steel imports over the past two years to counter what EU steel producers say is a flood of steel sold at a loss due to Chinese overcapacity.

Some 5,000 jobs have been axed in the British steel industry in the past year as it struggles to compete with cheap Chinese imports and high energy costs.

Many of the foreign investment measures approved Saturday by the State Council were tested in pilot free-trade zones in Shanghai, Guangdong, Tianjin and Fujian in keeping with China’s often incremental approach to reform, according to Financial Tribune.

The measures come as Beijing tries to prepare its economy for greater foreign competition under a possible bilateral investment treaty with the US, say trade experts. Beijing and Washington have held 28 rounds of negotiations since 2008 on such a treaty without reaching a deal.

As China’s economy has weakened this year and private investment fallen off—private fixed asset investment grew by an anemic 2.1% during the first eight months of 2016 compared with 21.4% for state-owned companies—China has encouraged foreign investment to bridge the gap and help boost an economy expected to grow even more slowly this year than in 2015, when it recorded a quarter-century low.