European Business Group Urges China to Show Greater Openness, Clarity for Foreign Investment

(Beijing) — China’s newly released negative list for foreign investment signals a slower than expected opening of the economy and needs further clarity to help companies navigate the country’s complicated regulatory system, a European business group said Wednesday.

The government published the final version of its first nationwide negative list for foreign investment last month in the 2017 version of the Foreign Investment Industrial Guidance Catalogue — one of the fundamental rules regulating the sector in China.

The list, which takes effect July 28, reduced the number of industries under the “restricted” or “prohibited” categories by 30, or by about a third, from the 93 listed in the 2015 version of the catalogue.

However, the actual broadening of market access was limited, partly because only seven sectors, such as motorcycle manufacturing, mining and mine selection of lithium were raised from the restricted or prohibited categories to the “encouraged” category, said Mats Harborn, president of the European Union Chamber of Commerce in China.

“The openness is not as fast as expectations would suggest listening to the rhetoric coming out of the leadership,” he told reporters, referring to speeches given by top Chinese leaders over the past few months pledging commitment to globalization and foreign companies’ engagement with China’s economy.

He also urged the government to simplify and clarify its framework for regulating foreign investment. This is because, apart from the negative list unveiled last month, overseas investors are also subject to limits set out in an overarching market-access negative list that applies to all companies — domestic and foreign alike — as well as fragmented industrial policies and national security reviews.

“It is a patchwork of different things telling us where we are allowed to invest either in an open way or in a way together in joint venture structures,” Harborn said. “This is leaving us confused.”

“This is the message we want to bring across — more clarity is needed,” he added.

Foreign investment in China has slowed in recent years, as rapidly rising labor and land costs in the country have driven investors to move their plants to cheaper locations in Southeast Asia, while developed economies including the U.S. have been encouraging their companies to return to create jobs.

In 2016, foreign direct investment in nonfinancial sectors fell 0.2% year-on-year to $126 billion, compared with an increase of 5.6% in 2015.

Contact reporter Fran Wang (fangwang@caixin.com)