Large Chinese cities will be beneficiaries of increased foreign direct investment through new channels in the service sector, thanks to a fairer market environment and stricter laws to protect intellectual property, said experts on July 18.
Their comments came after the central government’s call on July 17 to ease the entry restrictions and share ratio limitations on foreign investment in areas such as nursery and elderly care, architecture, accounting, commerce and logistics, e-commerce and the traditional manufacturing and service sectors.
The central government urged megacities including Beijing, Shanghai, Guangzhou and Shenzhen to take the lead in improving the business environment, calling for moves to reduce inspections and fines on companies, and ban the charging of illegal fees.
“Led by supply-side structural reform and an innovation-driven strategy, China’s economy is increasingly dominated by the service sector, and more profound changes are occurring in relatively developed regions,” said Gao Peiyong, director of the Institute of Economics at the Chinese Academy of Social Sciences in Beijing.
“The government’s move shows that China is paying serious attention to innovation and has issued a number of promising policies,” he said. “It also created a sound environment for China-foreign cooperation.”
FDI inflows fell 0.1 percent year-on-year to 441.54 billion yuan ($65.33 billion) between January and June, but the decline narrowed from that in the first five months, as foreign investment in June rose 2.3 percent to 100 billion yuan, according to data from the Ministry of Commerce.
“There are five elements that are critical to FDI－of course rapidly growing market consumption in China is the most important of all. Global companies also look at reasonable labor and logistics costs, mature industrial chains, and an improving business climate when they plan to expand,” said Liu Shengjun, an economist at the Lujiazui Institute of International Finance.
Eager to enhance the country’s earning ability, the Chinese government announced at the end of last month that more sectors are now open for foreign investment in China’s 11 pilot free trade zones, ranging from helicopter manufacturing to financial services.
China will release the 2017 Catalog for the Guidance of Foreign Industries to offer more favorable policies and further improve the market environment for global companies by the end of this month.
Bai Ming, a researcher at the Beijing-based Chinese Academy of International Trade and Economic Cooperation, said industrial upgrading is vital to sustain economic growth and prevent the nation from falling into the middle income trap.
“The country must further open its doors in certain monopoly sectors such as banking and energy, and reduce the administrative fees on foreign business charged by government branches and various trade associations, as well as eliminate intellectual property infringement and counterfeiting in both manufacturing and cross-border e-commerce,” said Bai.
Aside from attracting foreign capital, China also started a series of changes to the rules regarding permanent residence for foreigners in April. The reform plan serves the country’s talent development strategy, which is to attract more innovative and entrepreneurial talent.
Foreign investment has played a significant role in China’s economic development, promoting reasonable allocation of resources and driving market-oriented reform.
The manufacturing sector attracted 128.6 billion yuan of foreign investment in the first half, up 3 percent year-on-year, accounting for 29.1 percent of total FDI, while FDI in the service sector reached 309.99 billion yuan, making up 70.2 percent of the total.