The People’s Republic of China (PRC) is the top global Foreign Direct Investment (FDI) destination after the United States due to its large consumer base and integrated supply chains. In 2019, China made some modest openings in the financial sector and passed key pieces of legislation, including a new Foreign Investment Law (FIL). China remains, however, a relatively restrictive investment environment for foreign investors due to restrictions in key economic sectors. Obstacles to investment include ownership caps and requirements to form joint venture partnerships with local Chinese firms, industrial policies such as Made in China 2025 (MIC 2025), as well as pressures on U.S. firms to transfer technology as a prerequisite to gaining market access. These restrictions shield Chinese enterprises – especially state-owned enterprises (SOEs) and other enterprises deemed “national champions” – from competition with foreign companies.
The Chinese Communist Party (CCP) in 2019 marked the 70th anniversary of its rule, amidst a wave of Hong Kong protests and international concerns regarding forced labor camps in Xinjiang. Since the CCP 19th Party Congress in 2017, CCP leadership has underscored Chairman Xi Jinping’s leadership and expanded the role of the party in all facets of Chinese life: cultural, social, military, and economic. An increasingly assertive CCP has caused concern among the foreign business community about the ability of future foreign investors to make decisions based on commercial and profit considerations, rather than CCP political dictates.
Key investment announcements and new developments in 2019 included:
- On March 17, 2019, the National People’s Congress passed the new FIL that effectively replaced previous laws governing foreign investment.
- On June 30, 2019, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly announced the release of China’s three “lists” to guide FDI. Two “negative lists” identify the industries and economic sectors from which foreign investment is restricted or prohibited based on location, and the third list identifies sectors in which foreign investments are encouraged. In 2019, some substantial openings were made in China’s financial services sector.
- The State Council also approved the Regulation on Optimizing the Business Environment and Opinions on Further Improving the Utilization of Foreign Investment, which were intended to assuage foreign investors’ mounting concerns with the pace of economic reforms.
While Chinese pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are needed to improve the investment environment and restore investors’ confidence. As China’s economic growth continues to slow, officially declining to 6.1% in 2019 – the slowest growth rate in nearly three decades – the CCP will need to deepen its economic reforms and implementation. Moreover, the emergence of the Coronavirus (COVID-19) pandemic in Wuhan, China in December 2019, will place further strain on China’s economic growth and global supply chains.
|Transparency International’s Corruption Perceptions Index||2019||137 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||31 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||14 of 126||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||USD116,518||https://apps.bea.gov/international/
|World Bank GNI per capita||2018||USD9,460||http://data.worldbank.org/indicator/