China’s new steps to open its door wider will be triple-win

By Lu Xiankun

On April 10th, the speech by Chinese President Xi Jinping at the annual Boao Forum for Asia caught the eyes of the international community. Much has been said in that speech, but one part that caught most attention was the announced steps to open its door wider to foreign products, services and investment. They could be categorized in the following aspects:

Chinese President Xi Jinping holds discussions with representatives of entrepreneurs from home and abroad, who gather here for the annual conference of the Boao Forum for Asia (BFA) in Boao, south China's Hainan Province, April 11, 2018. [Photo: Xinhua]

I.To import more foreign products by significantly lowering the import tariffs for vehicles and some other products this year, accelerating negotiations toward joining the WTO Government Procurement Agreement (GPA), hosting annually the China International Import Expo and opening free trade ports in selected cities or regions in China.

II.To allow more foreign services and investment into China by significantly raising foreign equity caps in the banking, securities and insurance industries, easing restrictions on the establishment of foreign financial institutions in China and expanding their business scope, opening up more areas of cooperation between Chinese and foreign financial markets, and raising also the foreign equity cap in vehicle sector.

III.To further strengthen the protection of intellectual property rights by stepping up law enforcement, raising the cost of offenders, and unlocking the deterrent effects of relevant laws. Xi in particular emphasized that China will encourage “normal technological exchanges and cooperation between Chinese and foreign enterprises, and protect the lawful IPR owned by foreign enterprises in China.” To help achieve such objectives, China is re-instituting the State Intellectual Property Office. 

IV.To improve its investment environment by completing the revision of the negative list on foreign investment in the first half of 2018, implementing across the board the management system based on pre-establishment national treatment and negative list. Xi also announced some other policies of more general nature, such as enhancing alignment with international trading rules, increasing transparency, upholding the rule of law, encouraging competition and opposing monopoly. Xi said that the reshuffling of its administration starting from March 2018, including the newly-established State Administration for Market Regulation, was meant to remove the systematic and institutional obstacles that prevent the market from playing a decisive role.

Obviously, in such a condensed 40-minute speech by the top representative of China, some had to be left out, including the technicalities that may explain how these steps can be concretized. Therefore, there appeared to be a promises fatigue and some doubts about how these measures can be realized. Probably having foreseen all this, Xi did emphasize close to the end that these measures would be made a reality “sooner than later” and China's door will only be opened up “even wider”. 

Once implemented, these new measures will surely bring more and better products and services to China’s increasingly enriched population of 1.4 billion, with a per capita GDP close to USD 9000 at the end of 2017, and close to double that level in big cities such as Tianjing, Beijing and Shanghai. When China is making tremendous efforts to use domestic consumption as the main engine for its economic development, this will add great value to that ongoing process. 

China’s new steps will also provide more opportunities for foreign producers, services providers and investors. Taking financial sectors for example, even after China’s WTO accession negotiations, banking, securities and insurance remain highly protected with a strict cap of foreign equity, serious geographic limitations on establishment of branches and stringent restrictions on the business scope of foreign financial institutions. Even among the 16 free trade agreements (FTAs) signed by China, which are supposed to do better than WTO negotiations on market opening, few of such FTAs managed to achieve any new liberalization of financial sectors. The only exception is the FTA with Australia, albeit the new liberalization is quite limited. Xi’s new announcement offered great hope that key industries such as finance will be substantially opened up and be done in an expedited manner. Just hours after Xi’s speech, China’s central banker Mr. Yi Gang said, also at the Boao Forum, that new measures to liberalize China’s financial sectors will be implemented in the next few months. It is also noted that Chinese State Council announced on April 11th some new measures will be taken to open its market for new medicines that treat cancer, including cutting tariffs for such medicines to zero starting from May 1st. 

What is also very important is that Xi’s speech marks a revolutionary transition of China, from its intransigent position in the past not to make unilateral concessions and only give as much as it takes, towards more confidence to proactively open up its markets. This will not only help reduce the stark gap between China and other major economies in terms of liberalization level on goods, services and investment, but also urge other major players to follow suit and play a responsible role in supporting the WTO. This is very important when the multilateral trading system is plagued by protectionism and unilateralism. 

In a word, considering that 2018 marks the 40-year anniversary of China’s reform and opening up, one remains very hopeful that the announced measures will concretize soon and render 2018 the start of a new phase of China’s reform and opening-up for the benefits of its own, its trading partners as well as the multilateral trading system. 

(Professor LU Xiankun is former senior trade diplomat of China and now Emeritus Professor of University of International Business and Economics and Wuhan University of China. He is also Managing Director of LEDECO Geneva and Senior Vice President of Shenzhen UEB Technology Co. LTD.)