China will allow local and foreign investors access to more sectors of the economy after cutting its so-called negative list for market access.
China’s state planner on Friday released a shortened list of industries that are either restricted or prohibited to investors.
The 2022 list covers 117 industries, according to a document released by the National Development and Reform Commission, down from 123 in 2020.
Industries not on the list, which has been gradually reduced in recent years, are open to all investors and do not require special approval.
Hans Hendrischke, a professor of Chinese business and management at the University of Sydney Business School, said such moves towards liberalising the economy have been in the works for some time.
“There is pressure from the corporate sector and economists in China to make more substantial changes while the government is still insisting on gradual reforms such as pilot zones,” Hendrischke told Al Jazeera. “So I don’t think this is just a cosmetic change.”
The release of the list comes as foreign investors are pulling their money out of China en masse following Russia’s invasion of Ukraine.
On Thursday, the Institute of International Finance said “unprecedented” outflows from Chinese stocks and bonds may be related to Moscow’s deepening ostracisation over the war.
China has refused to label Moscow’s military offensive an invasion and condemned sanctions against its strategic partner, although it has expressed concern about the conflict. United States President Joe Biden has threatened China with unspecified “consequences” if it offers material support for the war.
‘Negative pattern of capital outflows’
Alicia García Herrero, chief Asia Pacific economist at Natixis in Hong Kong, told Al Jazeera Beijing would be concerned about investment exodus out of China.
“It’s of course too early to destabilise the currency or create uproar but I think they are very worried about this,” García Herrero told Al Jazeera.
García Herrero said Beijing may view foreign investment as a deterrent against the kind of sanctions levelled against Russia by the US and its allies.
“First it increases interdependence. The more FDI that comes to China, the less likely countries with big FDI will be to follow a path similar to [the one taken one on] Russia. So you have support basically,” she said.
“So they want to open and capture those investors that will then lobby for them. And second, of course, this means funding. It can revert the now very negative pattern of capital outflows.”
China has opened up a greater number of industries in recent years, including the financial services, although the country remains a “relatively restrictive investment environment” for foreign investors, according to a US State Department analysis. China overtook the US as the top destination for new foreign direct investment for the first time in 2020, partly as a result of the negative effect of the COVID-19 pandemic on other economies. China attracted inflows of $163bn that year, compared with $134bn in the US, according to the United Nations Conference on Trade and Development.
At the same time, Beijing has launched a series of sweeping crackdowns on private enterprise under its campaign of “common prosperity”, bringing increased scrutiny to tech companies, real estate and private education.
Heng Wang, an expert in the Chinese economy at the University of New South Wales, said Beijing has an incentive to attract investment.
“It would be important for economic development and job opportunities when it faces the economic slowdown,” he told Al Jazeera, adding China could boost its attractiveness to investors by providing transparency, predictability and impartial dispute resolution mechanisms.
“Foreign investors may also bring technology. On the other hand, it is to be seen how the regulatory practice including that relating to the negative list may evolve. This goes beyond the negative list and involves broader areas ranging from taxation to intellectual property protection and dispute settlement. It is to be seen how China addresses the issues of market opening and strengthened regulation”
