Doors Wide Shut? An Update on FDI Regulations in China
The fears of a rise in economic nationalism in China have been fueled by a number of recent moves, such as changes in the law on indigenous innovation or the enactment of a national security review (NSR) regulation for M&As by foreign enterprises. The objective of the current paper is twofold: First is to provide an update on the investment environment in China in order to determine whether or not these provisions reflect a move in the direction of more protectionism, and second is to suggest ways for European countries to level the playing field for their firms wishing to invest in China.
The general message is that no clear-cut trend can be identified. While it cannot be said that the regulatory environment is increasingly rigid, there has not lately been any clear loosening of restrictiveness either.
The recently promulgated changes to the catalogue on foreign investment guidance point to further opening, in particular with fewer restricted categories. However, this positive change is counterbalanced by the persistence of ownership restrictions in particular. Similarly, although the Chinese government has backtracked on its decision to connect indigenous innovation policy and government procurement, the Chinese public procurement market is still heavily restricted for foreign investors. Lastly, the implementation of the merger review under the anti-monopoly law suggests that foreign firms are to some extent being discriminated against even if the recently enacted NSR procedure should not bring major changes to the existing regulatory setting.
More generally, with an important level of discretion left in the hands of Chinese authorities at all levels of responsibility, the business environment remains complex for foreign investors. A major problem in the Chinese case relates to the lack of transparency and of stability in the regulatory environment. The vagueness of some provisions (economic security is a case in point) and the lack of precision in the responsibilities assumed by various levels of government (be they central or provincial, as in the case of the indigenous innovation catalogues) generate an opaque and uncertain business environment. Retroactive application of some regulations is also not uncommon, further increasing the lack of predictability in the regulatory environment.
The challenge for China's partners is to find the best way, beyond regulatory reforms, to level the playing field for their firms operating in China. This paper calls for opening negotiations on a bilateral investment treaty between China and the EU. The treaty needs to be ambitious and comprehensive, covering both pre and post-establishment issues (market access as well as investment protection in particular). One major advantage of a BIT negotiation is that it would be based on a global approach to FDI-related issues, thus allowing trade-offs between various objectives.
Available in:
Regions and themes
ISBN / ISSN
Share
Download the full analysis
This page contains only a summary of our work. If you would like to have access to all the information from our research on the subject, you can download the full version in PDF format.
Doors Wide Shut? An Update on FDI Regulations in China
Related centers and programs
Discover our other research centers and programs
Center for Asian Studies
Asia is a nerve center for multiple global economic, political and security challenges. The Center for Asian Studies provides documented expertise and a platform for discussion on Asian issues to accompany decision makers and explain and contextualize developments in the region for the sake of a larger public dialogue.
The Center's research is organized along two major axes: relations between Asia's major powers and the rest of the world; and internal economic and social dynamics of Asian countries. The Center's research focuses primarily on China, Japan, India, Taiwan and the Indo-Pacific, but also covers Southeast Asia, the Korean peninsula and the Pacific Islands.
The Centre for Asian Studies maintains close institutional links with counterpart research institutes in Europe and Asia, and its researchers regularly carry out fieldwork in the region.
The Center organizes closed-door roundtables, expert-level seminars and a number of public events, including an Annual Conference, that welcome experts from Asia, Europe and the United States. The work of Center’s researchers, as well as that of their partners, is regularly published in the Center’s electronic journal Asie.Visions.
Find out more
Discover all our analyses
The China-led AIIB, a geopolitical tool?
The establishment of the Asian Infrastructure Investment Bank (AIIB) in 2016, on a Chinese initiative, constituted an attempt to bridge the gap in infrastructure financing in Asia. However, it was also perceived in the West as a potential vehicle for China’s geostrategic agendas, fueling the suspicion that the institution might compete rather than align with existing multilateral development banks (MDBs) and impose its own standards.
Jammu and Kashmir in the Aftermath of August 2019
The abrogation of Article 370, which granted special status to the state of Jammu and Kashmir (J&K), has been on the agenda of the Bharatiya Janata Party (BJP) for many decades.
France’s Contributions to Pacific Maritime Governance
France stands out as the only European country capable of making a substantial security contribution to the South Pacific, with a permanent presence of 2,800 military personnel extensively skilled in regional cooperation.
Unlocking India’s Energy Transition: Addressing Grid Flexibility Challenges and Solutions
India is rapidly scaling up its renewable energy (RE) capacity, adding 15–20 GW annually, but the ambitious goal of 500 GW of non-fossil capacity by 2030 is at risk unless the pace accelerates.