China’s Opening-Up Has Entered a New Stage

Zhao Jinping

On 10 April 2018, President Xi Jinping, in his keynote speech delivered at the opening ceremony of the 2018 Annual Conference of the Boao Forum for Asia, emphasized that China’s door of opening-up will not be closed and will only open even wider.Opening-up was key to China’s economic growth over the past 40 years and in the same vein, high-quality development of China’s economy in the future can only be achieved with greater openness. It is a strategic decision made by China based on its need for pursuing development and also a concrete action taken by China to move economic globalization forward in a way that benefits people across the world. 

Standing on such a strategic height, President Xi announced at the conference four major measures that China will pursue to open up wider. These measures are now under implementation across the board, and as a result, China’s opening-up has entered a new stage. 

I. Opening-up is an essential requirement for China’s development and will bring new opportunities for countries around the world

The year 2018 marks the 40th anniversary of China’s reform and opening-up. Remarkable achievements have been made in China’s opening-up over the past 40 years, which has played a highly important role in promoting reform and development. However, we must be clearly aware that there still exists a certain gap between the current status of China’s opening-up and the need to adapt to complex changes in the external environment, foster new strengths for participating in and steering international competition and cooperation and boost the high-quality development of China’s economy. The inadequacy and imbalances in the width, depth and intensity of opening-up remain the major contradiction for the current stage. Therefore, to open up wider is first and foremost a strategic need for China’s own development. Second, in the international environment, the United States has been wantonly engaged in unilateralism and trade protectionism and willfully trampled on WTO rules to hit its trading partners, seriously undermining the development environment and cooperation foundation for economic globalization. China’s real actions to keep opening up wider will fully demonstrate its firm determination and confidence in participating in and advancing economic globalization and create new drivers for promoting development of globalization that is open, inclusive, balanced and beneficial to all with win-win outcomes. This is a pressing need to better cope with changes in the international landscape and improve the global environment for development. Third, to realize the goal put forward by President Xi Jinping of promoting the building of a community with a shared future for mankind, it is necessary to establish international cooperative relationships on the basis of mutual benefits and win-win progress. As the second largest economy and one of the top trading and investment nations in the world, when China opens up wider across the board, it will create more opportunities for other countries to share the dividend of China’s development by expanding their trade with and investment in China. This is an important manifestation that China proactively shoulders its responsibility of an emerging major country. 

II. Substantially broadening market access in important areas such as finance and automobiles will become a new highlight in China’s opening-up

To put into action the major measures proposed in the report of the 19th CPC National Congress on making new ground in pursuing opening-up at all fronts, it is crucial to open up across the board and focus on breaking new ground. In particular, how to realize opening-up of market access in key areas such as modern service sectors and general manufacturing has caught wide attention with raised expectation. Among the four major measures announced by President Xi Jinping in his keynote speech in Boao, the first involves the significant broadening of market access in relevant areas, in which two aspects are most attention-catching. One is the opening-up of financial sectors and the other is the opening-up of the general manufacturing sector including automobiles. China’s financial sectors such as banking, securities and insurance had long had multiple restrictions on investment access with a low level of market opening. As a result, the competition in the financial market was inadequate and so were service capacity and international competitiveness of financial institutions.As the major measures of raising foreign equity caps in the banking, securities and insurance industries, easing restrictions on the establishment of foreign financial institutions and expanding their business scope are now being implemented, it will domestically create easier and more favorable conditions for foreign financial institutions to enter China’s financial market competition, elevate financial product development and innovation capacity and financial service efficiency, meet consumers’ growing needs for diversified and tailored financial services and alleviate the pressure faced by enterprises due to the difficulty and huge costs in financing. Externally, it will be conducive for Chinese financial institutions to establish cooperation with multinational financial companies and global financial service networks and enhance their capacities of international operation and consolidating factors and resources, thus raise the status of China’s financial sectors in the global value chain. Meanwhile, opening-up of market access certainly will mean more requirements for warding off risks and improvement of financial regulatory capabilities in the orderly opening-up of financial sectors. Opening-up of the automobile sector will help promote market competition and technological innovation, lower costs and offer more choices for consumers. To forestall market monopolies, it is necessary to strengthen and improve the policy system on competition and keep the market competition in order.  

To implement the new measures announced by President Xi Jinping on significantly broadening market access, the Chinese government is now intensively revising the latest versions of negative lists. On 31 May, the Ministry of Commerce of China stated that the new version of national negative list and the negative list for FTA pilot zones will be made public before 30 June. Areas where market access will be broadened include the financial and automobiles sectors as announced before and sectors like energy, infrastructure, transport and logistics for business and trade. Opening-up of market access will enter a new stage where highlights keep emerging. 

III. China is committed to creating a more attractive investment environment 

The investment environment includes important factors such as tax arrangements, labor resources and costs, industrial competition policies, market rules and the investment administration system, which have major impact on the appeals of such an environment to foreign investments. Over the past 40 years, China has kept introducing measures of reform and opening-up and transformed from mainly relying on preferential tax policies to leveraging labor resources advantages and market growth potential to attract foreign investment. Visible results have been scored in improving the investment environment. This has also been one of the major reasons that China has long been among the top countries concerning scales of attracting international investment. However, as China’s economic growth has continued to moderate and the traditional advantages in labor resources have been weakened, the competition from emerging markets and the return of manufacturing to developed economies have augmented significantly the pressure that China’s economy faces. To create an investment environment featuring internationally accepted trading rules, fair market competition policies and a transparent and stable investment administration system has become the key element for fostering new competitiveness concerning the investment environment. 

Based on the strategic need for creating a more attractive investment environment, President Xi Jinping emphasized that China will enhance alignment with international economic and trading rules, increase transparency, strengthen property rights protection, uphold the rule of law, encourage competition and oppose monopoly. China will provide institutional safeguards to ensure that the market play a decisive role in resources allocation and the government better play its due role. The implementation of these measures will markedly enhance the appeals of the Chinese market to foreign investors. 

The development of pilot free trade zones which has been deepened and expanded since 2013 has all along focused on creating an internationalized, regularized and market-based investment environment as a pilot program of institutional innovation. A great amount of successful experience has been gathered and applied in a wider range of areas, playing a leading and exemplary role in China’s endeavors to create a more attractive investment environment. On the third day after the opening ceremony of the 2018 Annual Conference of the Boao Forum, President Xi Jinping announced the important decision that the CPC Central Committee and the State Council support the building of a Pilot Free Trade Zone and exploring the building of a Free Trade Port with Chinese characteristics in Hainan Island. The building of a pilot free trade zone covering an area of 35,000 square kilometers will be unfolded in full swing and a free trade port system with a higher level of opening-up in Hainan will take shape through gradual exploratory efforts. This is of long-term and far-reaching significance for China’s endeavors to create a more attractive investment environment.

On 30 May, the Executive Meeting of the State Council made decisions on canceling or easing access restrictions for foreign investments in areas such automobiles, ship-building, aircrafts, finance and bulk energy commodity trading, simplifying procedures for granting working permits to foreign workers and issuing visas within two days to qualified foreign talents recruited by enterprises registered in China. This shows that substantive progress has been made in fully implementing the measures announced by President Xi Jinping for creating a more attractive investment environment.   

IV. Strengthening IPR protection has generated tremendous incentives to enhancing the competitiveness of China’s economy

IPR is an important part of property rights held by market players. To strengthen IPR protection is first of all a need to protect the safety of property rights of investors and the legitimate rights and interests of enterprises. In the meantime, intellectual property rights are manifestations of innovation and creative ideas. To protect IPR helps owners of property rights to maximally enjoy their interests of innovation and also help other enterprises share innovative achievements in a reasonable way. What is more important is that it will generate tremendous incentives to new innovative activities. The market competition in today’s world is mainly that of innovativeness as innovation is the source of international competitiveness of enterprises. To protect IPR is to protect innovation, which is desirable for foreign companies and even more so for Chinese companies. 

President Xi Jinping underscored in his speech at the Boao Forum for Asia that China will re-institute the State Intellectual Property Office to step up law enforcement. Through these measures, the cost for offenders will be raised and the deterrent effect of relevant laws will be fully unleashed. This will promote IPR protection in China to a new height and strongly facilitate normal technological exchanges and cooperation between Chinese and foreign companies. On the other hand, as Chinese companies engage in international operations and make more overseas investments, they naturally need strengthened IPR protection from foreign countries as well. The Section 301 investigation by the United States has accused China of infringing on the IPR of US companies and targeted some strategic emerging industries in which companies realize technological progress through normal technical cooperation. Actually, this is an inappropriate practice which turns a blind eye to the legitimacy of re-innovated IPR of Chinese companies. It is therefore fair to say that it is increasingly important to strengthen international cooperation on IPR protection and build multilateral dispute-settlement mechanisms. 

China now is taking actions to speed up the implementation of the major measures announced by President Xi Jinping. On 30 May, the Executive Meeting of the State Council made the decision on substantially raising the cap for IPR damage compensation, demonstrating China’s resolve and its power to take actions for strengthening the building of a law-based environment for IRP protection by enhancing law enforcement. 

V. China will remain committed to the policy direction of promoting the basic balance of international payments by expanding imports

President Xi Jinping stressed in his keynote speech at Boao Forum for Asia that China does not seek trade surplus and has a sincere desire to increase imports and achieve greater balance of international payments under the current account. This fully shows China’s approach to opening-up and its policy direction to proactively expand imports. China on the whole has maintained the trend of achieving balance gradually in its foreign trade. Imbalances in certain bilateral trades have mainly resulted from the comparative advantages of different countries against the backdrop of globalization. This conforms to the market rules and requirements of division of industries and all parties to such division have benefited from their economic complementarities. Therefore, when there is significant surplus or deficit in bilateral trade, unilateral restrictions on imports or exports will seriously undermine interests of both sides and affect the overall trade balance. The most effective way for China to reduce the surplus it runs in its trade with other countries is to further increase imports. This is conducive to protecting the legitimate rights and interests of exporting companies and promoting trade balance. It also helps to fully elevate the level of market opening, meet the need for upgrading domestic consumption and increasing domestic demands and bring more opportunities of economic and job growth to trading partners. 

The measures announced by President Xi Jinping on holding the Import Exposition annually and further cutting import tariffs on products such as automobiles have been well received by foreign governments and enterprises and met the expectations of domestic companies and consumers. These measures are now being intensively implemented. On 22 May, the Tariff Regulations Committee of the State Council announced that as of 1 July 2018, tariffs on automobiles and auto-parts will be lowered. The tariff on automobiles will be cut from 25% and 20% to 15%, and that on auto-parts from 8-25% to 6%. On this basis, the State Council decided that starting from 1 July 2018, tariff on daily consumer goods will be lowered substantially. The average tariff rate on clothing, kitchenware and sports and fitness products will be reduced from 15.9% to 7.1% and that on home appliances such as washing machines and refrigerators will be cut from 20.5% to 8%. These measures are bound to exert positive impact on the win-win cooperation between China and its major trading partners.   

Zhao Jinping is Council Member of CPIFA and Former Director-General and Research Fellow of the Research Department of
Foreign Economic Relations of the Development Research Center of the State Council.