Beijing has renewed its charm offensive to woo the foreign business community, stressing that it will keep opening up its domestic economy to inject some certainty in an increasingly hostile external environment.
China is offering a range of olive branches to American and European firms to continue and expand their businesses in the country, even as its rivalry with Washington risks descending into a new cold war that could force firms to pick sides.
The Chinese government’s key incentive to keep multinational companies onshore and lure other foreign financial giants is access to its huge domestic market, with fresh promises offered at the China International Fair for Trade in Services in Beijing, the first in-person trade expo since the start of the coronavirus pandemic.
“We’ll build a more open financial system,” Chen Yulu, deputy governor of the People’s Bank of China, told a forum on Sunday morning.
“The measures adopted previously have already yielded initial success as more foreign investors and institutions are entering China’s financial markets in an orderly fashion.”
The opening of China’s domestic financial market was one of the main provisions of the phase one trade deal Beijing signed with Washington in January. Since then, many Wall Street institutions, including banking giants JP Morgan and Morgan Stanley, investment companies Vanguard and BlackRock and credit card companies American Express and Mastercard, have gained greater access to China’s rapidly expanding corporate and consumer financial markets.
These moves have helped slow attempts by China hawks in Washington to decouple the world’s two biggest economies.
Foreign investors are also piling into Chinese capital markets, thanks to the Stock Connect and Bond Connect programmes that allow investment in Chinese domestic securities through Hong Kong. By the end of July, overseas holdings of yuan-denominated assets had risen 37 per cent from a year earlier to 7.74 trillion yuan (US$1.13 trillion), according to Chen. And foreign holdings of Chinese bonds reached 2.8 trillion yuan by end-August, an increase of 130 billion yuan from July, according to Shanghai Clearing House.
Speaking at the same forum, Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, said there was still great potential for further foreign investment in China’s capital markets, with the regulator promising to further expand the Stock Connect programme and increase access to domestic exchange-traded funds.
Overseas investors accounted for just 4.69 per cent of China’s A-share stock market capitalisation, well below the 30 per cent offshore players held in the Japanese and South Korean markets, Fang said.
Zhou Liang, vice-chairman of the China Banking and Insurance Regulatory Commission, said China welcomed the involvement of foreign specialised and boutique financial institutions in the domestic market.
In a report on Friday, Morgan Stanley analysts said the bank expected over US$150 billion of portfolio inflows to China this year and a total of up to US$3 trillion over the next decade.
“The structure of China’s capital inflows will gradually gravitate towards portfolio inflows, whereas FDI [foreign direct investment] inflows dominated in the previous two decades,” the report said.
The pressure on companies to diversify their supply chains and the new corporate strategy of producing “in China, for China” rather than for the world market would lead to lower FDI flows in coming years.
It estimated that FDI would amount to US$40-80 billion per year over the next decade, compared to an annual average of US$116 billion in the past decade.
In an annual survey report released last month, the US-China Business Council acknowledged that there was general progress in the opening up of the Chinese market as part of the implementation of the phase one trade deal.
However, the council also warned that some surveyed firms had a less positive outlook amid US-China tensions and the coronavirus pandemic. Fair competition, intellectual property rights protection, and data security remained among firms’ top concerns
The scramble to assure foreign business leaders and to lure big name companies to do more business in China is part of President Xi Jinping’s effort to expand cooperation to countries that are willing to work with China to offset decoupling efforts by the US. It is also meant to reassure those concerned that the domestic focus of the government’s new “dual circulation” economic strategy would make opening up the economy to foreign firms a lower priority.
Opening the trade fair on Friday evening, Xi called on other countries to help forge an “open and inclusive” environment. “China will unswervingly expand the opening up [of its economy] … lower market access barriers for the services industry, and actively expand imports of high-quality services,” he said.
But Chinese authorities must also convince a huge domestic audience that the new “dual circulation” strategy introduced in May is feasible. The strategy relies more on the domestic economy for growth while maintaining the export economy amid a turbulent external environment.
Wang Yiming, former deputy head of the Development Research Centre of the State Council, said the strategy was not a matter of domestic or international demand priority, but how to break barriers that hindered economic operations.
“Ever since the central authority unveiled the strategy, many have wondered if it will lead to an inward-looking focus or slow the pace of opening up. As a matter of fact, domestic demand has already been dominant since the 2008 global financial crisis,” he said at a wealth management forum in Beijing on Saturday.
“The core of internal circulation is not how big the domestic contribution is, but how to improve domestic operations through market-oriented reform.”
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This article China tries to woo wary foreign firms with market access to offset US decoupling first appeared on South China Morning Post