China has decided to open its telecommunications, education and healthcare sectors to foreign investors after the country suffered a sharp decline in foreign direct investment (FDI).
At an executive meeting of the State Council chaired by Chinese Premier Li Qiang on Monday, four documents were reviewed and approved to help the country attract foreign capital.
The documents include the 2024 edition of a set of special administrative measures, a negative list, for foreign investment access. According to the negative list, China will further relax restrictions on foreign investment by completely eliminating entry barriers in the manufacturing sector, while accelerating the opening up of sectors such as telecommunications, education and health services.
“The last State Council meeting decided to modernize the country’s service sector by promoting the cross-border flow of key resources such as talent, capital, technology and data,” said Zheng Wei, a researcher at the Shanghai-based China Outsourcing Institute, a research unit under the Ministry of Commerce, in an interview with the Economic Information Daily.
“The opening of the telecommunications, education and healthcare industries, which are relatively sensitive industries, shows China’s determination to proactively open its economy to the world,” Zheng said. “In the future, China will take more substantial measures to accelerate its opening-up and further enhance foreign investors’ confidence in the country.”
When China began opening up its economy in the 1980s, it first relaxed restrictions on foreign investment in the manufacturing sector.
In the automotive sector, foreign companies had to establish 50:50 joint ventures with Chinese partners to be allowed to do business in China. However, since 2022, this restriction no longer exists.
For national security reasons, China has never opened up its telecommunications, education and healthcare sectors, which are still controlled by state-owned enterprises. Beijing is expected to gradually relax regulations on these industries.
According to most observers, China has no short- or medium-term plans to open up its defense, energy or media industries.
Foreign direct investment and jobs
The State Council’s latest decisions came after China’s foreign direct investment fell 29.1 percent year-on-year to 498.9 billion yuan ($69.5 billion) in the first half of this year.
At the same time, China’s outbound direct investment (ODI) rose 16.6 percent to $72.62 billion as many Chinese manufacturers had to expand their production capacity abroad to either cut costs or avoid new tariffs from the West.
China needs to increase its foreign investment because its labor market has so far failed to create enough jobs for young people.
According to the National Bureau of Statistics (NBS), youth unemployment in China rose to 17.1 percent in July, the highest level since the new registration system was introduced last December. In June this year, the figure was still at 13.2 percent.
In June 2023, youth unemployment reached a record high of 21.3%, the NBS said.
For much of the second half of 2023, China had suspended reporting of its youth unemployment rate. The country said it was rethinking its calculation methods. In February this year, the NBS announced that the youth unemployment rate for last December, calculated using a new method, was 14.9%.
The figure was around 14% in the first half of this year until a sharp increase in July. Chinese officials said the increase was due to the increased number of college graduates over the summer.
Praise Deng again?
The 20th Central Committee of the Communist Party of China concluded its third plenary session on July 18 by adopting a five-year plan aimed at modernizing China’s industry and promoting economic reforms.
On July 30, General Secretary of the Communist Party of China Xi Jinping said that the Chinese economy was “facing increasingly negative impacts from changes in the external environment, while effective domestic demand remained insufficient.”
On the same day, Xi urged Hong Kong businesspeople in a letter to increase their investment in mainland China and contribute to the country’s reform and opening up. However, the response from Hong Kong magnates has so far been rather muted.
On August 16, Qiushi, the CCP’s official theory journal, published two articles praising former Chinese leader Deng Xiaoping for his contribution to the reform and opening up of the Chinese economy in the 1980s.
The two opinion pieces also said that Deng had stabilized China’s relations with the United States, the Soviet Union, Japan and Britain.
Ming Jing News, a Canada-based Chinese news website, wrote in a commentary that the two Qiushi articles aimed to exploit Deng’s reputation to unite the CCP, now led by Xi. The two articles were not politically incorrect as they merely reminded party members to support Xi’s economic reforms.
Capital outflow
Beijing not only wants to attract foreign investors to boost its foreign direct investment, but also wants to take precautions to prevent panic selling on the stock exchanges in Shanghai and Shenzhen. Since Monday, China has stopped publishing daily data on capital flows abroad.
Chinese government officials had already indicated in April that they would cut real-time data on northbound foreign capital flows from Hong Kong to mainland Chinese stock markets. They made the decision at the end of July.
Some analysts said Beijing hopes to reduce market volatility caused by high-frequency data and shift investors’ focus to longer-term indicators, such as the Chinese central bank’s quarterly reports on financial assets held by foreign companies.
They said the move would not address the root cause of the problem caused by global investors’ weak confidence in the Chinese economy, while it would reduce the transparency of China’s cross-border capital flows.
Chen Hongbing, chairman of Anhui Meitong Asset Management Ltd, told UDN.com that the daily data of northbound funds is seen by investors as an indicator of overall market sentiment. He said the decision to stop publishing the data could help curb speculative activities and reduce market volatility.
However, some retail investors said it was unfair that they currently cannot access real-time data, while brokerage firms can still monitor and predict market trends using their own data.
Read: Real estate crisis continues to weigh on investment and consumption in China
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