Global Anger Finally Seems to Be Getting China to Open Up Markets: Viewpoint

By Andrew Polk | December 18, 2018

Forty years after China began opening itself up to the outside world, the country increasingly seems to be closed for business. A large and growing contingent of the global business community is convinced that China will never allow foreign companies to compete fairly on the mainland; frustration with Chinese industrial policies and market restrictions is acute. Ironically, those same frustrated foreign firms are in danger of missing out on the best moment in years to invest in China.

That’s precisely because global anger is finally beginning to have an impact. Even the most ideological Chinese policymakers can’t help but recognize that in foreign businessmen, they’re at risk of losing some of their greatest allies historically.

Getting tougher on China is practically the only bipartisan issue inside the Beltway these days. European negotiators are pressing hard not only on market access, but on the less-visible tactics that China uses to disadvantage foreign companies, such as the approval of business licenses and overly aggressive compliance investigations.

In response, policymakers are reportedly considering a significant overhaul of their Made in China 2025 industrial policy, which is at the heart of complaints by foreign governments. Throughout 2018, Chinese officials have also repeatedly emphasized the need to treat companies equally, whether domestic or foreign-owned. “Competitive neutrality” has become a buzzword in Beijing.

Cynics are right to point out that we’ve heard such promises before. What’s different now is that top Chinese leaders seem ready to commit themselves personally to more ambitious opening measures.

Multiple factors are driving them. First, given the speed and intensity of the shift in sentiment against Chinese industrial policy, China’s leaders are desperate to change the narrative that the country is no longer eager for foreign investment. In the past several months, foreign companies have struck a handful of marquee deals in China. And, by all accounts, high-level Chinese officials have strongly backed the agreements, pushing back against domestic vested interests and a reluctant bureaucratic apparatus.

In October, for example, German automaker BMW AG announced that it was set to gain a controlling stake of 75 percent in its joint venture with Brilliance China Automotive Holding Ltd., up from the current 50 percent. In September, Exxon Mobil Corp. signed a cooperation agreement with the government of Guangdong to build a major new chemical complex in the province. And in July, the German chemical company BASF SE inked a deal to build its own, wholly-owned chemical complex that may be worth up to $10 billion. None of these agreements would have seemed possible even three years ago.

Importantly, both the BMW and Exxon Mobil announcements were accompanied by individual meetings between top executives and Chinese Premier Li Keqiang. Such one-on-one meetings are a rarity these days; they attest to the value China places on these investments.

Second, by committing to such high-profile deals, Chinese leaders seem to be ensuring that they cannot delay or renege on promises of market opening as they have in the past. Each of the deals above will take years to come to fruition and, in some cases, the policies that will enable them to go forward haven’t yet been fully enacted. Rules that will allow foreign companies to obtain majority ownership in traditional auto ventures aren’t slated to come into effect until 2022, for instance. The BMW deal signals a commitment to ensuring that actually happens.

Similarly, while rules that will allow foreign life insurers to own majority stakes in their China ventures have yet to be finalized, negotiations for such approvals are already underway. The insurance regulator has given German insurer Allianz SE the go-ahead to establish the first wholly foreign-owned insurance holding company. This is another way to signal that Chinese leaders understand the promise fatigue among the foreign business community and are taking action to ensure that officials stick to their policy commitments.

Finally, the slowing of China’s domestic economy and recent moribund growth rates of inbound foreign direct investment are further encouraging pragmatism in Beijing. Both the National Bureau of Statistics and the Chinese central bank governor have recently highlighted the “rising downward pressures” that China’s economy is facing. And with traditional macro stimulus measures less effective than they’ve been in the past, China has to find new ways to revive growth. Efforts to improve the domestic business environment and to attract foreign investment are both part of that equation.

To be sure, foreign companies must approach the accelerated opening measures with cautious optimism. What’s more, foreign governments will need to keep up the pressure on China to prevent backsliding. That means that any new opportunities for foreign companies will arise within the context of a tense and uncertain geopolitical environment. That’s not the typical recipe for making major new investments in a foreign market. For now, though, it’s the best foreign firms can hope for.

Topics Trends China Germany

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