China has moved to open up its telecommunications, education and healthcare sectors to foreign investors after a sharp decline in foreign direct investment (FDI).
An executive meeting of the State Council chaired by Chinese Premier Li Qiang on Monday reviewed and approved four documents aimed at helping the country attract foreign capital.
The documents include a 2024 edition of a set of special administrative measures or a negative list to facilitate foreign investment access. According to the negative list, China will further ease restrictions on foreign investment by completely removing barriers to entry in the manufacturing sector, while accelerating the opening up of sectors such as telecommunications, education and healthcare.
“At the last meeting of the State Council leaders, it was decided to upgrade the country’s service sector by encouraging the cross-border movement of important resources such as talent, capital, technology and data,” said Zheng Wei, a researcher at the Shanghai-based China Outsourcing Institute. An entity operating under the Ministry of Commerce, said in an interview with Economic Information Daily.
“Opening up the telecommunications, education and health sectors, which are relatively sensitive industries, shows China’s determination to proactively open its economy to the world,” Zheng said. “In the future, China will take more substantive measures to accelerate its opening up and further increase foreign investors’ confidence in the country.”
When China began opening up its economy in the 1980s, it initially eased restrictions on foreign companies investing in its manufacturing sector.
In the auto sector, foreign companies had to establish 50-50 joint ventures with Chinese partners to run their business in China. But such restriction has ended from 2022 onwards.
For national security reasons, China has never opened up its telecommunications, education and healthcare sectors, which are still controlled by state-owned enterprises (SOEs). Beijing is expected to gradually relax rules in these industries.
According to most observers, China has no plans to open up its defense, energy and media industries in the short or medium term.
foreign direct investment and jobs
The State Council’s latest decisions come after China’s foreign direct investment fell 29.1% to 498.9 billion yuan (US$69.5 billion) in the first half of this year from a year ago.
At the same time, China’s overseas direct investment (ODI) rose 16.6% to US$72.62 billion as many Chinese manufacturers had to build overseas production capacity either to cut costs or avoid new tariffs imposed by the West.
China needs to increase its foreign investment as its labor market has so far failed to create enough jobs for young people.
According to the National Bureau of Statistics (NBS), China’s youth unemployment rate rose to 17.1 percent in July, the highest level since the introduction of a new accounting system last December. In June this year, this figure was only 13.2%.
In June 2023, the youth unemployment rate reached a record 21.3%, NBS reported.
For much of the second half of 2023, China had suspended reports on its youth unemployment rate. It announced that it was reevaluating its calculation methods. In February this year, the NBS announced that the youth employment rate calculated using the new method was 14.9% last December.
This figure had been around 14% in the first half of this year until a significant increase in July. Chinese officials said the increase was driven by an increase in the number of recent graduates over the summer.
Praising Deng again?
20. The Central Committee of the Communist Party of China concluded its third plenary session on July 18 with the adoption of a five-year plan aimed at modernizing China’s industry and promoting economic reforms.
On July 30, CCP General Secretary Xi Jinping said China’s economy was “being adversely affected by changes in the external environment, while effective domestic demand remains insufficient.”
In his letter on the same day, Xi urged Hong Kong businessmen to increase investment in mainland China and contribute to the country’s reform and opening up. However, responses from Hong Kong business magnates have so far remained lukewarm.
On August 16, Qiushi, the official theoretical journal of the CCP, published two articles praising former Chinese leader Deng Xiaoping for his contributions to China’s economic reform and opening in the 1980s.
The two opinion pieces also said that Deng had stabilized China’s relations with the United States, the Soviet Union, Japan and Great Britain.
Canada-based Chinese news website Ming Jing News said in a commentary that the two Qiushi articles were intended to use Deng’s reputation to unify the CCP, now led by Xi. It said the two articles were not politically incorrect as they only reminded party members to support Xi’s economic reforms.
Capital outflow
Beijing is not only keen to attract foreign investors to increase its FDI, but also to take precautions to avoid panic in the Shanghai and Shenzhen stock markets. As of Monday, China has stopped publishing daily data on overseas fund flows.
As early as April, Chinese officials hinted at a cut in real-time data on northbound foreign fund flows from Hong Kong to mainland Chinese stock markets. They made the decision at the end of July.
Some analysts said Beijing hoped to reduce market volatility caused by high-frequency data and turn investors’ attention to longer-term indicators such as the People’s Bank of China’s quarterly reports on financial assets of foreign entities.
They said the move would not address the root of the problem, which was caused by global investors’ weak confidence in China’s economy, while reducing the transparency of China’s cross-border capital flows.
Chen Hongbing, chairman of Anhui Meitong Asset Management Ltd, told Taiwan’s UDN.com that investors view the daily data of northbound funds as an indicator of overall market sentiment. He said the decision to stop publishing the data could help curb speculative activity and reduce market volatility.
But some individual investors said it’s unfair that they can’t get real-time data now, while brokerage firms can still track and predict market trends using their own data.
Read: Property crisis still haunts Chinese investment and consumption
Follow Jeff Pao on X: @jeffpao3
#Chinas #telecoms #education #healthcare #open #FDI #Asia #Times