Provinces, FTZs follow central govt in further opening up to foreign investors

By Wang Cong Source:Global Times Published: 2017/7/5 18:03:39

Containers are organized into stacks at the Shanghai Pilot Free Trade Zone. Photo: CFP

Since China's central government issued guidelines on further opening up the domestic market and expanding the use of foreign capital, a slew of provincial governments have followed suit by introducing new policies to extend market openness on the local level. However, challenges still remain for increasing foreign capital in China, especially given the declining competitiveness in labor costs and other areas.

In Shanghai, foreign capital is welcome in financial, Internet, cultural and few other sectors. In East China's Jiangsu Province, the government wants to further open up the services sector to foreign investors. In Southwest China's Sichuan and Central China's Henan provinces, foreign involvement in high-end manufacturing is encouraged.

Those are just a few of China's provinces, regions and municipalities that have issued their own policies regarding the expansion of their local markets to foreign investors, following similar measures taken by the central government.

China has made further opening up the domestic market to foreign investors a top priority in recent years and recent actions from the provincial-level governments have shown that national effort is gaining footing on the local level, albeit challenges in driving up the number of foreign firms and capital are evident, experts have since pointed out. 

Since the State Council, China's cabinet, in January issued a list of measures to expand the use of foreign capital, nearly a dozen provincial level governments have released similar policies, according to a report published by the Beijing-based Economic Information Daily on Tuesday.

In addition to Shanghai, Jiangsu, Sichuan and Henan, Central China's Hubei Province, East China's Fujian Province and South China's Guangxi Zhuang Autonomous Region are among the provinces, regions and municipalities that have adopted local policies to expand market openness, according to the report.

National strategy, local focus

The contents of the local governments' policies are largely in line with those listed in the State Council's document.

For example, provincial governments, in their own policies, focus on areas such as expanding market access for foreign capital and improving policies and measures in handling foreign investment, therefore creating a fair environment for foreign investors. These policies were also listed in the State Council's document.

Local governments also followed the central government in determining industries in which they plan to further open up for foreign investors.

For example, many of the provincial governments focus on further advancing the services and manufacturing sectors, both of which were highlighted by the State Council as key areas due for new rounds of expansion. But some local governments place special focus on some specific areas. 

Sichuan's focus on attracting foreign companies in manufacturing is in line with the province's overall goal to develop a top high-end manufacturing base in western China under the "Made in China 2025 Sichuan Action Plan."

In guidelines issued by the provincial government on June 2, Sichuan said it would provide the same policy support for both foreign and domestic companies in manufacturing. The guidelines said the province will encourage foreign investment in high-end manufacturing, smart manufacturing and green manufacturing.

Some local governments also vowed to further expand market openness on top of the central government's plan. Shanghai expanded areas in the services sector based on the State Council's expansion list.

In addition to opening up accounting, auditing, ratings and other services, as designated by the central government, Shanghai also plans to open up services in telecommunication, Internet, cultural, shipping and other areas to foreign investors, according to a document published on the municipality's official website on April 26.

Experts say each province has its own advantage and could try to expand market openness in different areas.

"Shanghai is a financial center, so naturally, it could go further than what the central government stated in terms of opening up the financial services market to foreign investors," Sun Lijian, director of the Financial Research Center at Fudan University, told the Global Times on Wednesday.

"After all, the central government has to consider the market as a whole and tends to be more cautious when opening up across the border," he said.

Sun noted that each province, along with their own experiments, would ultimately become part of the country's overall opening-up effort.  

FTZs' new pilot list

In addition to provincial governments, China's pilot free trade zones (FTZs) are also mulling over new measures to further improve market openness, as they are set to adopt a new negative list which was issued by the central government on June 16.

The State Council on June 16 published a new negative list, which contains areas that are restricted for foreign investment.

The list cut 27 items from an earlier version, bringing the total items down to 95. The list would be adopted by the country's 11 FTZs, including the FTZs in Shanghai, Tianjin and South China's Guangdong Province, starting on Monday.

The Economic Information Daily report said that the FTZs in Shanghai and Guangdong are considering new opening-up measures. The Shanghai FTZ is considering further opening up sectors such as telecommunication and Internet, while the Guangdong FTZ is contemplating measures to further open up the financial sector, according to the report.

Challenges persist

All of this is a coordinated effort from the top to bottom in order to attract foreign capital, or more so foreign technology, following slowdown in foreign investment in China, according to Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation.

"Attracting foreign capital has become increasingly challenging for China recently because we are losing our competitiveness with labor costs on the rise," Bai told the Global Times on Wednesday.

He noted that labor intensive firms have been moving to Southeast Asia, while high-end manufacturing is moving back to developed countries.

The latest data from the Ministry of Commerce shows that despite efforts from the central government as well as the local ones, both the number of new foreign firms in China and investment amount are on the decline.

In May, a total of 2,433 new foreign companies were set up in China, down 5.4 percent year-on-year, according to the data released on June 15.

Also in May, China used a total of 54.67 billion yuan ($8.05 billion) of foreign capital, down 3.7 percent year-on-year. In the first five months of 2017, total foreign capital in China declined 0.7 percent year-on-year.

In Bai's view, intensified efforts to further open up the domestic market could ease pressure on losing foreign investment, but challenges will remain and both the central government and local governments might need to adjust their strategies in attracting foreign investment.

"Also, while we focus on attracting more foreign capital, it is crucial that we use the ones we receive more effectively," he said.

Newspaper headline: Top-down market openness

Posted in: INSIGHT

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