The ruling Chinese Communist Party (CCP) has removed its 2021 restrictions on foreign investment in the manufacturing sector.
China observers believe that it’s the regime’s attempt to save its declining economy and a contingency measure forced on the regime by the current economic difficulties. However, they say the policy is contradictory to the CCP’s core emphasis on its political security, and therefore, in the long run, the policy change won’t have much effect on the economy.
CCP leader Xi Jinping announced the “eight actions” that the CCP would take, which included “comprehensively lifting restrictions on foreign investment access in the manufacturing sector,” at the Belt and Road Summit in Beijing on Oct. 18.
Most restrictions on foreign investment access from the regime’s 2021 list have been removed, with the exception of two areas: publications and printing and traditional Chinese medicine, according to Yicai, a major Chinese finance media outlet.
Restrictions remain on foreign investment in publications and printing, whose shareholders must be Chinese, and on foreign investment in the application of processing technologies for traditional Chinese medicine, such as steaming, frying, broiling, and calcining, and the production of confidential prescription products of proprietary Chinese medicines, according to Yicai.
Regarding the lifting of investment restrictions in manufacturing, U.S. economist Davy Jun Huang told The Epoch Times that the Chinese authorities haven’t provided much support to the manufacturing industry in the past 10 years, instead investing a large amount of funds in the information technology and mobile banking sectors.
“[The CCP] originally believed that it could overtake others countries through IT and hoped to change the international rules through its financial services industry. But neither of these two paths worked, so it started to develop new energy, and the final result was not successful either,” Mr. Huang said. “Now, it’s turned back and found that the real business is manufacturing, which has prompted the change in its economic policies.”
With its current sluggish economy, China is in great need of foreign production orders, technology, management, and funds, so it has again relaxed restrictions imposed for political security reasons in the recent past, he said.
“But Chinese medicine and publications, these two sectors are not open, while all others are liberalized,” Mr. Huang said.
In the first eight months of this year, the actual amount of foreign capital used nationwide was 847.17 billion yuan (about $115.8 billion), a year-on-year decrease of 5.1 percent, according to data from the CCP’s Ministry of Commerce. This is the first time in three years that this number has fallen.
Low Confidence in Investing in China
Bank of America’s September Global Fund Manager Survey, which polled 222 participants, found that a net-zero percent of fund managers expected a stronger Chinese economy in the next 12 months. “Avoid China” has been the predominant sentiment, which was propelled by the COVID-19 pandemic.“By removing the restrictions on foreign investment, on the one hand, China hopes the foreign investment will drive technological growth and development. On the other hand, in the face of foreign investment continuing to leave China in recent years, they hope that new policies can accelerate the return of foreign investment,” Tai Chih-Yen, associate researcher and deputy director of the Science and Technology Policy Evaluation Research Center of Taiwan’s Chinese Economic Research Institute, told The Epoch Times.
However, in recent years, Mr. Xi has continued to emphasize the CCP’s political security. The CCP recently revised its Anti-Espionage Law, which came into effect on July 1.
There have been many cases of raids on foreign companies’ offices in China and arrests of foreign companies’ employees—which have scared off foreign business people—such as the detention of employees of the U.S. investigation firm Mintz Group and the arrest of a Japanese employee of Astellas Pharma on suspicion of espionage.
Some foreign company executives are now afraid to travel to China for business.
Beijing’s regulations for China-based businesses have indeed been very contradictory, according to Mr. Tai.
“When the CCP authorities can relate anything to national security, many investment behaviors, or many behaviors that were allowed in the past, may now easily lead to the risk of imprisonment,” he said.
With the CCP, it’s necessary to wait and watch in order to determine if the CCP can truly be consistent with its stated policies, Mr. Tai said, giving the example of the CCP going back on its promise to not change Hong Kong’s system of governance and law for 50 years.
Mr. Huang said the outside world needs to be cautious about whether the CCP can fulfill its promises. After China joined the World Trade Organization and increased its exports, it failed to fulfill its promise to truly open up as a free market to Europe and the United States, he said.
Wang He, a U.S.-based China observer, told the NTD, sister outlet of The Epoch Times: “Due to the instability of China’s political situation and the possibility of sudden changes in the international situation—especially the recent two wars, the Russia–Ukrainian war and the Israel–Hamas war—the world has become increasingly turbulent. The CCP may attack Taiwan any time. From this perspective, foreign businessmen may have great reservations about investing in China and are making profound adjustments.
“It will be very difficult for the CCP to achieve its goals of stabilizing foreign investment and foreign trade.”
