China seeks to woo foreign investors by cutting red tape

China has responded to reports of the Trump administration’s efforts to attract investment by US companies back to the US by announcing the withdrawal of the requirements it demands of foreign investors that have been viewed as overly onerous.

It has done away with 1995 regulations that demanded that foreign companies set up a representative office in China before operating in the jurisdiction, a process that often meant many months of “complicated paperwork and formalities”, the South China Morning Post noted.

The news came in a statement put out by China’s Ministry of Commerce on Tuesday.

The volte-face comes as the country faces new economic realities as it approaches the end of its traditional low-cost model that gave it a strong competitive edge.

Domestic growth is now slowing, and at a symposium yesterday Vice-Premier Wang Yang, pictured left, warned of challenges ahead in seeking to attract foreign direct investment (FDI) into the country.

He said that the focus would be to attract more FDI into the country in the service sectors, the central and western regions and  to high-value-added areas, saying “[China] needs to innovate on FDI”.

“It needs to transform its cost advantages… pay more attention to creating a level playing field after companies get access to the market, and to look more to M&As than greenfield investment,” he said.

The intervention comes as it was revealed that FDI revenue was done about 6% year-on-year, and coincides with noises out of Washington about a rumoured corporate tax cut from 35% to just 20%.

‘I want tariffs! Bring me some tariffs!’

It has also been well documented  that the US is considering the introduction of tariffs on foreign goods and services, with President Trump having taken a strongly protectionist stance both in the election campaign last year, and reportedly during his presidency.

Last month, US online news platform Axios reported on a White House meeting in which President Trump made clear his desire to introduce tariffs on Chinese goods, telling newly appointed chief of staff General John Kelly: “So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs.”

‘China is laughing at us’

According to the Axios account of the meeting, which was not disputed by the White House, President Trump added: “China is laughing at us. Laughing.”

China’s announcement on Tuesday comes in the light of these threats and the fact that companies are already pulling out.

In January of this year US hard-drive giant Seagate announced the closure of one of its largest sites globally, a 2,200-employee, 1.1 million sq ft base in Sizhou that it had inherited from fellow US drive manufacturer Maxtor when it acquired it in 2006.

The only sites that are larger are in Singapore and Thailand, and it will be of concern to the Chinese leadership that it is losing such foreign investors – and large-scale employers – to other countries in the region.

Whether there is a great deal that is new in this latest announcement to cause a significant uptake among overseas investors remains to be seen.

No real change in policy

“I don’t think there is really a change in the policy agenda,” Julian Evans-Pritchard, a China economist with Capital Economics, told the South China Morning Post.

“They’ve been talking about taking steps to encourage more FDI for a long time… but there are lots of broken promises in the past.”

Instead, Evans-Pritchard attributed the FDI downturn both to the economic slowdown and partly because of the regulatory environment, he said.

“The operating conditions of foreign firms in many sectors have become worse rather than improved,” he added.

‘One small measure’

Chief China economist at Nomura International Zhao Yang agreed with Evans-Pritchard in saying that this was one small measure among a raft that were needed if there is any significant inroad into attracting FDI to be made.

He said that a number of preferential policies had been withdrawn in recent years, adding that these measures will have “limited effects” in the short term.

“They are more measures to encourage long-term inflows as the capital flight situation in China worsens,” concluded Zhao.

Eugene Costello
Eugene Costello has been a journalist for some 20 years, and has written for a wide variety of UK and international newspapers and magazines.

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