China has decided to open up its telecommunication, education and healthcare service sectors for foreign investors after suffering from a sharp decline in foreign direct investment (FDI).
An executive meeting of the State Council, presided over by Chinese Premier Li Qiang, on Monday reviewed and approved four documents that are aimed at helping the country attract foreign capital.
The documents include the 2024 edition of a set of special administrative measures, or a negative list, for foreign investment access. According to the negative list, China will relax restrictions on foreign investment further by completely abolishing entry barriers in the manufacturing sector, while accelerating the opening up of sectors such as telecommunication, education and health care services.
“The latest State Council executive meeting decided to upgrade the country’s service industry by encouraging the cross-border flows of essential resources such as talent, capital, technologies and data,” Zheng Wei, a researcher with Shanghai-based China Outsourcing Institute, a research unit operating under the Ministry Commerce, told the Economic Information Daily in an interview.
“The opening up of the telecommunication, education and healthcare sectors, which are relatively sensitive industries, demonstrates China’s determination to proactively open up its economy to the world,” Zheng said. “In the future, China will take more substantive measures to accelerate its opening up and further enhance the confidence of foreign investors in the country.”
When China started opening up its economy in the 1980s, it initially relaxed restrictions for foreign firms to invest in its manufacturing sector.
In the auto sector, foreign firms needed to set up 50-50 joint ventures with Chinese partners in order to run their businesses in China. But such a restriction has ended since 2022.
For national security reasons, China has never opened up its telecom, education and healthcare service sectors, which are still controlled by state-owned-enterprises (SOEs). Beijing is expected to ease rules in these industries step by step.
China has no plan to open up its defense, energy and media industries in the short or medium term, according to most observers.
FDI and jobs
The State Council’s latest decisions came after China’s FDI fell 29.1% to 498.9 billion yuan (US$69.5 billion) in the first half of this year from a year ago.
At the same time, China’s overseas direct investment (ODI) increased 16.6% to US$72.62 billion, as many Chinese manufacturers had to build overseas production capacity either to cut costs or to avoid new tariffs imposed by the West.
China needs to boost its foreign investment as its job market so far has failed to create enough jobs for young people.
According to the National Bureau of Statistics (NBS), China’s youth unemployment rate increased to 17.1% in July, the highest level since the new system of record-keeping began last December. In June this year, the figure was only 13.2%.
In June 2023, the youth unemployment rate reached a record high of 21.3%, said the NBS.
For much of the second half of 2023, China had suspended reports of its youth unemployment rate. It said it was reassessing its calculation methods. In February this year, the NBS said the youth employment rate, calculated with a new method, was 14.9% for last December.
The figure had been floating at about 14% in the first half of this year until a significant growth in July. Chinese officials said the increase was caused by an increase in the number of fresh graduates in summer.
Praising Deng again?
The 20th Chinese Communist Party’s Central Committee concluded its third plenary session on July 18 with the adoption of a five-year plan that aims to upgrade Chinese industries and push forward economic reforms.
On July 30, CCP General Secretary Xi Jinping said the Chinese economy is “facing more adverse impacts from changes in the external environment while effective domestic demand remains insufficient.”
On the same day, Xi in a letter called on Hong Kong business people to boost investment in mainland China and contribute to the country’s reform and opening up. However, Hong Kong tycoons’ responses have remained lukewarm so far.
On August 16, Qiushi, the official theoretical journal of the CCP, published two articles to praise former Chinese leader Deng Xiaoping for his contributions in the reform and opening up of the Chinese economy in the 1980s.
The two opinion pieces also said Deng had stabilized China’s relations with the United States, Soviet Union, Japan and Britain.
Ming Jing News, a Canada-based Chinese news website, said in a commentary that the two Qiushi articles are aimed at using Deng’s reputation to unite the CCP, which is now led by Xi. It said the two articles are not politically incorrect as they are only reminding party members to support Xi’s economic reforms.
Capital outflow
Beijing wants not only to attract foreign investors to boost its FDI but also to take precautions to avoid any panic-selling in the Shanghai and Shenzhen stock markets. Starting from Monday, China has stopped releasing daily data on overseas fund flows.
Back in April, Chinese officials had already hinted at cutting real-time data on northbound foreign fund flows from Hong Kong to mainland China’s stock markets. They made the decision at the end of July.
Some analysts said Beijing hopes to reduce market volatility induced by high-frequency data and turn investor focus to longer-term indicators, such as the People’s Bank of China’s quarterly reports on financial assets held by overseas entities.
They said the move will not solve the root of the problem, which was caused by global investors’ weak confidence in the Chinese economy, while it will reduce the transparency of China’s cross-border capital flow.
Chen Hongbing, chairman of Anhui Meitong Asset Management Ltd, told Taiwan’s UDN.com that the daily data of northbound fund funds are regarded by investors as an indicator of overall market sentiment. He said the decision to stop releasing the data may help curb speculative activities and reduce market volatility.
However, some individual investors said it’s unfair that they can’t get the real-time data now while brokerage firms can still monitor and predict market trends using their own data.
Read: Property crisis still haunts China investment, consumption
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