Continuously shortened negative list for foreign investment unleashes market vitality in China
By Zhao Zhanhui, He Linping, Luo Shanshan, People’s Daily
In recent years, China has been steadily pushing forward the reform of its market access system, one of the fundamental systems underpinning the country’s socialist market economy. By continuously lowering market entry thresholds, increasing transparency of market rules, and creating a fairer market environment, China has fully stimulated the endogenous power and innovation vitality of various business entities.
China’s negative list system allows all types of business entities to equally enter industries, fields, and businesses that are not forbidden by the list in accordance with the law, without the requirement for further government approval.
In 2013, with the establishment of China (Shanghai) Pilot Free Trade Zone (FTZ) in east China’s Shanghai, the country’s first negative list for foreign investment was unveiled and implemented. The list was extended to other pilot FTZs in 2015 and implemented nationwide in 2016.
Apart from the negative list for foreign investment, China has also established the negative list for market access, the first country in the world to introduce the market access negative list into its domestic economic governance.
In 2016, the negative list for market access was piloted in four provinces and municipalities in China, and then expanded to 15 provinces and municipalities in 2017. In 2018, a nationwide unified negative list for market access was launched, marking the expansion of the list to the whole country.
By implementing the system of a negative list for market access, China has clearly defined the boundaries of government responsibility at the entry stage, fully leveraging the decisive role of the market in resource allocation and institutionalizing this approach.
Both the negative list for foreign investment and the negative list for market access started with pilot programs before gradually expanding to more regions based on the experience gained.
The negative list system has driven relevant institutional reforms in approval, investment, and regulation, effectively modernizing China’s governance system and capacity.
At the same time, China has constantly improved the mechanism for dynamic adjustment of the negative list. For instance, the current market access negative list for 2022 has reduced the number of prohibited and restricted items by 64 percent compared to the 2016 pilot edition.
The negative list system represents an important arrangement of China’s institutional opening up.
The gradual shortening of China’s negative list for foreign investment parallels the growth of foreign-invested enterprises in China.
The 2018 edition of the country’s negative list for foreign investment specified that by 2022, China would remove foreign ownership limits in the automobile industry and lift the regulation preventing foreign automakers from forming more than two joint ventures in the country.
In October 2018, the German carmaker BMW Group drafted an agreement to acquire a 25-percent stake in its Chinese joint venture, BMW Brilliance Automotive Ltd. (BBA).
In 2022, as China fully implemented the shortened negative list for foreign investment, the agreement was formally implemented, increasing BMW Group’s stake in BBA to 75 percent.
In April this year, the German automaker announced an additional investment of 20 billion yuan ($2.75 billion) in BBA’s production base in Shenyang, capital of northeast China’s Liaoning province, ready to start localized production of its new models.
The improved negative list system represents China’s efforts to promote institutional opening up. China has been committed to promoting high-standard opening-up, expanding market access, shortening the negative list for foreign investment, and enhancing the opening up of modern service industries. It has already announced the removal of all restrictions on foreign investment access in the manufacturing sector.
The continuously shortened negative list has helped accelerate the opening up of China’s service sector.
In March this year, Standard Chartered Securities China Limited (SCSCL), the first newly-established wholly foreign-owned securities firm in China, officially began operations.
The removal of market access restrictions in China’s financial sector has motivated Standard Chartered Group to accelerate its business expansion in the country.
“The Chinese market has been the largest contributor to Standard Chartered’s global network revenue for many years, and we look forward to the broader opportunities brought by China’s continuous opening-up,” said Jerry Zhang, CEO of Standard Chartered Bank (China) Ltd.
From the initial 190 items to the current 31 items in the national version and 27 items in the FTZ version, the shortened negative list for foreign investment has not only facilitated the growth of foreign-invested enterprises in China but also witnessed China’s accelerated high-standard opening up.
Institutional opening-up in China’s trade sector has also been advanced continuously.
On November 4, 2020, Chinese President Xi Jinping delivered a keynote speech via video at the opening ceremony of the third China International Import Expo held in Shanghai. He noted that China will continue to leverage the pioneering role of pilot free trade zones and free trade ports in steering opening up, and will introduce a negative list for cross-border services trade,
Eight months later, China released its first negative list for cross-border services trade. Shortly after, Khoo Wut Fat William, a lawyer from China’s Hong Kong Special Administrative Region (SAR), registered and obtained certification from the department of justice in south China’s Hainan province, becoming the first legal consultant from Hong Kong SAR to join a Hainan law firm.
This year, China’s Ministry of Commerce rolled out national and pilot FTZ versions of negative lists for cross-border trade in services, extending the negative lists for services trade to the whole country and promoting the tiered opening-up for cross-border trade in services.
In the first five months of this year, the number of newly established foreign-invested enterprises in China increased by 17.4 percent year on year.
China attaches great importance to steadily expanding institutional opening-up and market access. By shortening the negative list for foreign investment and creating a more market-oriented, law-based, and internationalized business environment, China will undoubtedly provide a broader market space and more opportunities of win-win cooperation for countries worldwide.
