Wednesday October 23, 2019

CHINA’S THIRD PLENUM: CONSEQUENCES FOR FOREIGN INVESTMENT

November 15, 2013

The Third Plenum of the 18th Central Committee of the Chinese Communist Party concluded in Beijing last week.  At this highly anticipated meeting President Xi Jinping unveiled China’s reform blueprint for the next decade.

 

Scholars such as Vikram Nehru, a senior associate at the Carnegie Endowment for International Peace, view China’s reform agenda as neither comprehensive or unprecedented, yet argue the priorities in the agenda  point towards a potentially significant change in not only the future of Chinese economic policies, but also in the manner in which these policies are approached.

The Chinese market was a focal point for the Plenum discussions.  The Communist Party leaders said markets would play a leading role in the Chinese economy but that state ownership would remain the foundation of the economy.

According to the official statement released by the CCP, “The core issue is to straighten out the relationship between government and market, allowing the market to play a decisive role in allocating resources and improving the government’s role.”

Additionally, the document offered a sustainable list of industries China plans to open.  Many are in areas the United States has been, for years, seeking to gain greater access.   These included the opening up of finance, education, culture, and health sectors. Foreign financial firms are particularly excited about the prospect of China’s financial opening.  For years,these firms have been frustrated by their limited access to minority stakes in their Chinese counterparts.

Of course, it remains to be seen what greater access and opening actually looks like.  Several China watchers argue that it seems unlikely China will change its course, regardless of what the blueprint says.  This is compounded by the fact that over the last several years Beijing has been pushing to scale back foreign involvement in the accounting and auditing industry.

On the other hand, however, the Party praised the Shanghai Free Trade Zone calling it a, “major advance by the party.”  The reform outlines that other places in China will also be allowed to set up free trade zones, but no additional specific details were given.  Moreover, according to the Wall Street Journal, “international expectations that the zone would be used by regulators as an area for financial reform have so far gone unrealized.”  One of the few concessions that have been successfully implemented in the Shanghai Free Trade Zone allows for foreign companies to invest in any industry they like within the zone, without regulatory approval, so long as that company is not on a list of excluded industries.  This list, known as the “negative list” is currently being explored by China for companies interested in foreign investment beyond the free trade zone.

In regards to the United States, China and the U.S. are currently engaged in talks to sign an investment treaty.  The United States has been promoting this idea for several years, to no success.  Now, after the plenum, the Chinese have expressed interest.  No further details of this treaty, however, have yet to be released.

As to the importance and significance of the Third Plenum blueprint reform, specifically in regards to foreign investment and market reform—only time will tell.

For Further Coverage of China’s Third Plenum, Please see the following news sources and commentary

Carnegie Endowment For International PeaceTwo Cheers for China’s Third Plenum

BBC NewsChina’s Third Plenum: Leaders Unveil Key Reforms

Business StandardBehind China’s Third Plenum

The Wall Street JournalXi Jinping: China is Open for Business

BrookingsChina’s Third Plenum: Reform and Opening Up 2.0?

China DailyDon’t Dismiss Third Plenum’s broad message, an expert says

The DiplomatWas China’s Third Plenum a Bust?

XinhuaInte’l Experts Hail China’s Reform Plan

Complied and Edited by Madeline Fetterly