After suffering a sharp decline in foreign direct investment (FDI), China has decided to open up its communications, education and health services sectors to foreign investors.
A State Council executive meeting chaired by Chinese Premier Li Qiang on Monday reviewed and approved four documents aimed at helping attract foreign capital.
The document includes the 2024 version of a set of special administrative measures for foreign investment entry (the Negative List), which states that China will further ease restrictions on foreign investment by completely eliminating entry barriers in manufacturing, and will accelerate the opening up of sectors such as communications, education and medical services.
“The State Council Executive Meeting decided to upgrade the country's service industry by encouraging cross-border flows of key resources such as talent, capital, technology and data,” Zheng Wei, a researcher at the China Outsourcing Institute, a Shanghai-based research institute under the Ministry of Commerce, told Economic Information Daily in an interview.
“The opening up of the communications, education and medical sectors, which are relatively sensitive industries, demonstrates China's determination to actively open up its economy to the world,” Zheng said. “Going forward, China will take more substantial measures to accelerate opening up and further enhance foreign investors' confidence in the country.”
When China began to open up its economy in the 1980s, it initially relaxed restrictions on foreign investment in manufacturing.
In the automotive sector, foreign companies were previously required to set up 50-50 joint ventures with Chinese partners to operate in China, but such restrictions have been lifted from 2022 onwards.
China has never opened up its communications, education and health services sectors, which remain controlled by state-owned enterprises (SOEs), for national security reasons. Beijing is expected to gradually ease restrictions on these industries.
According to most observers, China has no plans to open up its defense, energy, or media industries in the short or medium term.
Foreign Direct Investment and Employment
The State Council's latest decision comes after China's FDI in the first half of this year fell 29.1 percent from the same period last year to 498.9 billion yuan (US$69.5 billion).
At the same time, China's overseas direct investment (ODI) grew 16.6 percent to US$72.62 billion, as many Chinese manufacturers have had to build production capacity overseas to cut costs or avoid new tariffs imposed by Western countries.
China needs to increase outward investment as its job market has so far not been able to create enough jobs for young people.
China's youth unemployment rate rose to 17.1 percent in July, the highest level since a new recording system began in December, according to the National Bureau of Statistics (NBS). In June this year, the figure was just 13.2 percent.
Youth unemployment reached a record high of 21.3% in June 2023, according to the Office for National Statistics.
China had suspended publishing its youth unemployment rate for much of the second half of 2023, saying it was reviewing its calculation methodology. In February, the National Bureau of Statistics said that using a new method, the youth employment rate in December was 14.9%.
The figure had hovered around 14% in the first half of the year but rose sharply in July, a rise that Chinese authorities said was due to an increase in new graduates over the summer.
Are we praising Deng Xiaoping again?
The 20th Central Committee of the Communist Party of China concluded its third plenary session on July 18, adopting a five-year plan aimed at upgrading China's industry and promoting economic reform.
On July 30, Chinese Communist Party General Secretary Xi Jinping said of the Chinese economy that “the adverse impact of changes in the external environment is growing, while effective domestic demand remains insufficient.”
On the same day, President Xi sent a letter urging Hong Kong businesspeople to increase their investments in mainland China and contribute to the country's reform and opening-up, but the response from Hong Kong's powerful figures has so far remained lukewarm.
On August 16, the Chinese Communist Party's official theoretical journal Qiushi published two articles praising former Chinese leader Deng Xiaoping for his contributions to the reform and opening up of the Chinese economy in the 1980s.
The two essays also say Deng Xiaoping stabilized China's relations with the United States, the Soviet Union, Japan and Britain.
Ming Jing News, a Canada-based Chinese news site, said in an editorial that Qiushi's two articles were aimed at exploiting Deng Xiaoping's reputation to unite the Communist Party, now led by President Xi Jinping, but that they were not politically inappropriate because they simply called on party members to support Xi's economic reforms.
Capital flight
The Chinese government not only wants to attract foreign investors to boost outward direct investment, but also wants to take precautions to prevent panic selling in the Shanghai and Shenzhen stock markets. China has stopped publishing daily data on overseas capital flows since Monday.
Chinese authorities had already hinted in April that they would cut real-time data on northbound foreign capital inflows from Hong Kong into mainland stock markets. They took the decision at the end of July.
Some analysts said the Chinese government wants to reduce market volatility caused by high-frequency data and shift investors' focus to longer-term indicators such as the People's Bank of China's quarterly report on financial assets held by overseas companies.
They said the measure would not address the root of the problem caused by weak confidence among global investors in the Chinese economy and would reduce the transparency of capital flows across China's borders.
Chen Hongbing, chairman of Anhui Meitong Asset Management Co. Ltd., told Taiwan's UDN.com that the Northbound Fund's daily data is seen by investors as an indicator of overall market sentiment. He said the decision to suspend publication of the data could help curb speculative activity and reduce market volatility.
But some individual investors say it's unfair that brokerages can use their own data to monitor and predict market trends while individual investors don't have access to real-time data.
Real estate crisis continues to plague China's investment and consumption
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