The Executive Summary from the Position Paper 2017/2018
During his January 2017 speech at the World Economic Forum in Davos, Switzerland, President Xi Jinping presented China as strongly committed to economic globalisation. President Xi also stated that China would expand market access for foreign investors and level the playing field to make China’s market more transparent and better regulated.[1] Later that month, the State Council released the Notice on Several Measures on Promoting Further Openness and Active Utilisation of Foreign Investment (Guofa [2017] No. 5, State Council Document No. 5 or Circular 5).[2] European business recognises the level and significance of these public commitments.
In particular, the European Chamber attaches great importance to State Council Document No. 5, and sees it as the overarching principle that will guide foreign investment reform for the short to medium term. In it, 20 broad policy goals are categorised under three key themes:
1. Take further steps to open up to the outside world.
2. Further create an environment of fair competition.
3. Further strengthen efforts to attract foreign investment.
It is only natural that China now advocates this view of globalisation, having benefited so much from it since its WTO accession in 2001. However, while European business fully embraces the basic framework of State Council Document No. 5, it is suffering from accumulated ‘promise fatigue’, having witnessed a litany of assurances over recent years that never quite materialised. By supplanting words with concrete actions and providing reciprocal access to its market for both trade and investment, China can send a strong signal that they are following through on their commitments to further open up to the world and establish a level playing field. This would also help to drive forward the economic reform agenda announced at the Third Plenum in 2013.
While there have been a number of highly positive developments clearly indicating that China’s leadership understands the task at hand, the European Business in China Position Paper 2017/2018 shows many areas where more can be done, and provides constructive recommendations to the relevant authorities in order to help them achieve their objectives.
Take further steps to open up to the outside world
In terms of its openness to foreign direct investment, the Organisation for Economic Cooperation and Development (OECD) ranks China in 59th place out of the 62 countries evaluated.[3] There are reasons to be hopeful, however. For example, significant improvements have been seen over the past year in the pharmaceutical industry, with authorities streamlining regulations and improving accessibility. As with the anti-corruption drive, European business fully acknowledges the real progress China can make when there is consensus for reform.
This positive and forward-looking approach should now be applied to other industries that are potentially facing market closure. For example, in the agriculture, food and beverage industry, shipments of food products, including some low risk ones, will require an official inspection certificate from a foreign government as of 1st October 2017.[4] Since certification requirements for low-risk food products are out of line with international practice, this has the potential to dramatically reduce food imports.
Further create an environment of fair competition
The overall sentiment of ‘fair competition’ aligns perfectly with one of the European Chamber’s core advocacy points: achieving a level playing field for all businesses in China. However, there is a great deal that still needs to be done in this respect. For example, in some areas foreign-invested enterprises (FIEs) are still only permitted to play a limited role in setting standards, or are barred altogether, and face difficulties fully taking part in preferential policies that support research and development. In fact, overall, 54 per cent of European companies perceive they are treated less favourably compared to their Chinese counterparts.[5]
China could go some way towards rectifying this situation by broadly adopting a more open and even-handed approach to communicating regulations, as displayed by the State Administration of Foreign Exchange (SAFE) in 2017. The SAFE met directly with European business to solicit feedback regarding the impact of tightened capital controls. The European Chamber also encountered this kind of open communication when the National Development and Reform Commission, the Standards Administration of China and the local Departments of Commerce in Beijing, Chengdu, Nanjing and Shanghai separately engaged European businesses in dialogue about State Council Document No. 5 and its impact at the local level.
Further strengthen efforts to attract foreign investment There is a right and a wrong way to attract foreign investment. European businesses make investments when capacities need to be established or expanded in response to market demand, not because an investment zone offering short-term financial incentives has been set up. Companies are far more interested in the basics of predictability, transparency and the rule of law. Likewise, talented individuals are more interested in the soft environment, where air quality, access to schools and medical facilities, and a convenient transportation infrastructure meet their and their family’s needs. Therefore the best approach is to embark upon a programme of deep economic, people-centred reforms that will enable sustainable growth – once this has been undertaken, more investment should follow.
If greater market access were granted, 56 per cent of respondents to the European Business in China Business Confidence Survey 2017 would be more likely to increase their investments.[6] But the Chinese authorities continue to ring-fence foreign investment with administrative measures, including the 2017 Foreign Investment Catalogue and the 2017 Free Trade Zone Negative List, while progress on the EU-China Comprehensive Agreement on Investment is left waiting in the wings. When weighed against the ‘tone at the top’ it is not clear why special rules and catalogues governing foreign investment are still being maintained at all, as they only serve to complicate China’s business environment and deter foreign investment. It would be preferable instead to amend the 1993 Company Law of the People’s Republic of China (revised 2013) so it applies equally to domestic enterprises and FIEs, and to establish a concise national negative list.
Conclusion
European business needs China to succeed and is prepared to expand operations in the country. However, investment plans must be based on certainty. The European Chamber will therefore continue to monitor the implementation of State Council Document No. 5 and related legislation, providing constructive feedback and cooperating with the Chinese authorities as they strive to establish China as an exemplar of economic globalisation.
[1] President Xi’s Speech to Davos in Full, World Economic Forum, 17th January 2017,
viewed 6th June 2017, <https://www.weforum.org/agenda/2017/01/full-text-of-xi-jinpingkeynote-at-the-world-economic-forum>
[2] State Council Document No. 5 is provided in English on page xx immediately after the
Executive Position Paper.
[3] FDI restrictiveness (indicator), OECD, 2017, <https://data.oecd.org/fdi/fdirestrictiveness.htm#indicator-chart>
[4] EU-China Seminar on Harmonised Certificate for the Food Imports to China, Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), 26th July 2016, viewed 12th April 2017, <http://jckspaqj.aqsiq.gov.cn/xwzx/xw/201607/t20160728_471079.htm>
[5] Business Confidence Survey 2017, European Union Chamber of Commerce in China, May 2017, p. 43, <http://www.europeanchamber.com.cn/en/publications-archive/516/Business_Confidence_Survey_2017>
[6] Business Confidence Survey 2017, European Union Chamber of Commerce in China, May 2017, p. 50, <http://www.europeanchamber.com.cn/en/publications-archive/516/Business_Confidence_Survey_2017>
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