China Projects Image of Global Free Trade Advocate with Shortened Negative List

(This article was originally published in the APCO China Reform Watch on Friday, June 29, 2018)

What Happened

China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) released a shortened “negative list” for foreign investment on June 28. The updated list significantly reduces the number of sectors in which foreign investment is restricted, cutting down last year’s draft list from 63 to 48 sectors. The updated list widens market access for foreign investment in primary, secondary, and tertiary sectors, with 22 opening-up measures in the finance, transportation, professional services, infrastructure, energy, resources, and agriculture sectors. The finance and automobile sectors specifically received a detailed timetable for continued opening. The new list will take effect on July 28.

The detailed negative list in Chinese can be found here.

What People Are Saying

• According to state media outlet Xinhua, the release of the revised negative list is “an important move to implement the central authorities’ arrangement for the opening-up strategy” and demonstrates China’s commitment to free trade.
• The NDRC emphasized that the release of the list indicates that China is ready to further open up its economy to the rest of the world.
• However, other commentators are skeptical about the prospects of continued opening. A Bloomberg analysis welcomed the list’s emphasis on financial sector opening, writing that “it’s an opportunity for the likes of Goldman Sachs Group and BP to expand in an economy with 1.4 billion consumers,” but questioned the actual attractiveness of the opening of the rare earth and power grids sectors.
• Other analysts questioned the promise of the list for financial reform opening, with one Reuters commentary arguing that “China may still pose strict capital requirements, which may de facto preclude most foreign institutions from entering the Chinese market.”
• A Chinese trade scholar noted in FT that the shortened negative list aims to “help with wooing Europe in particular, since they have been pushing a lot on this issue”. Pondering whether the list would be of interest for the US, he adds that “it won’t matter much to Trump because he doesn’t want US companies to invest abroad.”

Our Take

The easing of China’s investment environment is both long-awaited and symbolic, with this year marking the 40th anniversary since the start of Reform and Opening-Up. The announcement also comes at a critical moment, just one week ahead of the implementation of U.S. tariffs on Chinese goods. While the shortened negative list marks a welcome liberalization of China’s economy, the opening of only select industries suggests opening will continue to be on Beijing’s terms and in service of China’s national development and domestic priorities. The announcement also followed a week of discussions with the EU on a bilateral trade agreement, enabling China to portray itself as a champion of free and open international trade against the backdrop of U.S.-China trade frictions.

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