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6 White Paper on the Business Environment in China
On November 4, 2014, the Chinese government asked be set up by early 2015. Setting up national deposit insurance,
for suggestions from the public about the revised draft of Zhang says, “would pave the way for small and medium-sized
the Catalogue for the Guidance of Industries for Foreign banks to fall into bankruptcy without triggering widespread
Investment. The draft substantially cuts restrictive items from panic or runs on the remaining banks.” Newsweek notes that
79 to 35, further lifting the restriction of foreign investment China’s Central bank governor Zhou Xiaochuan has said
shares, cutting restrictions of “joint-venture/ cooperation” items deposit rates would therefore be set free “within two years.”2
from 43 to 11, and lifting items which had to be “controlled
by Chinese parties” items from 44 to 32. The draft removes When The Going Gets Tough
restrictions for foreign investments on iron and steel, ethane, oil
refining, papermaking, coal chemical equipment, automotive It is patently obvious that going ahead with the reform
electronics, hoisting machinery, electric transmission and program is bound to inflict pain in some very powerfully en-
transformation equipment, brand liquor, feeder railway, trenched interests in the Chinese economy, so all China watch-
subway, some pharmaceutical products and other general ers’ eyes fall inevitably on the man in the driving seat.
manufacturing industries. Worth mentioning here is that these
industries with removal of foreign investment restrictions have Since assuming the post of general secretary of the
overcapacities. 11 Communist Party in November 2012, Newsweek observes
that President “Xi Jinping has launched a tougher than
The draft also removes restrictions for foreign investment expected crackdown on corruption, which has included an
on e-commerce, financing companies, insurance brokers, fran- investigation of the family of a fellow member of the Politburo
chises, land development, and import and export commodity Standing Committee, China’s highest ruling body. He is largely
inspection. The draft drew on the experience of some pilot prac- surrounded by reform-minded advisers and has given no sign
tices in the Shanghai Free Trade Zone (SFTZ), with some lists that he will retreat from his agenda. He has until 2020 to get
more open to foreign investment than the “Negative List” of what he wants done, and the government is moving on key areas
the SFTZ.11 like financial reform and a host of other issues, such as allowing
private companies to move into sectors now dominated by
Still, the core of the reform agenda is financial liberalization state-owned firms.” 2
in general and interest rate liberalization in particular. Fixed-as-
set investment in 2013 (investment in plants, equipment and Part of this market transition is the perceived uneven en-
infrastructure) in China was 45 percent of GDP, while house- forcement of China’s six year old anti-monopoly law.
hold consumption was only 36 percent of GDP. A Newsweek
media report indicates that it is a “critical part of the reform According to Businessweek, a 2014 report by the U.S.-China
process for Beijing is essentially flipping those numbers” with Business Council shows that 86 percent of member companies
market forces, not the government, dictating where resources are “concerned about Beijing’s anti-monopoly enforcement
should go in China’s economy and market forces, not the gov- activity”, with 30 percent “fearing it will be used against them”.
ernment, allocating credit.2 The report said that China has stepped up investigations into
the auto industry and conducted “dawn raids” at foreign IT
Newsweek notes that “the subsidized system has led to companies16. Also according to Businessweek, a separate 2014
overcapacity across the manufacturing spectrum in China’s survey by Beijing’s American Chamber of Commerce in China
economy. That in turn increases deflationary pressure, as too found that 60 percent of respondents “believe foreign business
few companies have the pricing power to increase profits. is less welcome in China than before”, up from 41 percent late
Banks tend to lend money almost unthinkingly to favored last year. Nearly half of those surveyed said they have been
local employers—often state-owned themselves, usually big targeted in pricing or anticorruption campaigns16.
employers in any case, with close ties to local party officials. Since
local party officials were usually evaluated by the growth in jobs The U.S. Chamber of Commerce, the U.S. China Business
created in their own districts, all the incentives were aligned in Council, the European Union Chamber of Commerce in China
one direction: more. More investment, more factories, more and the American Chamber of Commerce in China all lodged
jobs—and more debt.” 2 complaints within a few weeks of each other in September
201417.
According to Newsweek, “to its credit”, President Xi’s new
government has already started to cool bank lending. Before In August 2014, Chinese regulators had levied fines of
interest rates can be completely liberalized, however, a deposit US$200 million on 10 Japanese auto-part makers for alleged
insurance system needs to be set up. Newsweek cites Zhang price manipulation. Audi AG, BMW AG and Mercedes-Benz
Ming, a senior research fellow at the Chinese Academy of Social parent Daimler AG also suffered similar pricing probes. Both
Sciences in Beijing, who quotes officials from the People’s Bank Microsoft Corp and Qualcomm Inc. were investigated for
of China and says that a national deposit insurance company will potential monopolistic activity. BMW, Audi and Daimler
responded to the investigations by cutting prices. Both Qual-
26
On November 4, 2014, the Chinese government asked be set up by early 2015. Setting up national deposit insurance,
for suggestions from the public about the revised draft of Zhang says, “would pave the way for small and medium-sized
the Catalogue for the Guidance of Industries for Foreign banks to fall into bankruptcy without triggering widespread
Investment. The draft substantially cuts restrictive items from panic or runs on the remaining banks.” Newsweek notes that
79 to 35, further lifting the restriction of foreign investment China’s Central bank governor Zhou Xiaochuan has said
shares, cutting restrictions of “joint-venture/ cooperation” items deposit rates would therefore be set free “within two years.”2
from 43 to 11, and lifting items which had to be “controlled
by Chinese parties” items from 44 to 32. The draft removes When The Going Gets Tough
restrictions for foreign investments on iron and steel, ethane, oil
refining, papermaking, coal chemical equipment, automotive It is patently obvious that going ahead with the reform
electronics, hoisting machinery, electric transmission and program is bound to inflict pain in some very powerfully en-
transformation equipment, brand liquor, feeder railway, trenched interests in the Chinese economy, so all China watch-
subway, some pharmaceutical products and other general ers’ eyes fall inevitably on the man in the driving seat.
manufacturing industries. Worth mentioning here is that these
industries with removal of foreign investment restrictions have Since assuming the post of general secretary of the
overcapacities. 11 Communist Party in November 2012, Newsweek observes
that President “Xi Jinping has launched a tougher than
The draft also removes restrictions for foreign investment expected crackdown on corruption, which has included an
on e-commerce, financing companies, insurance brokers, fran- investigation of the family of a fellow member of the Politburo
chises, land development, and import and export commodity Standing Committee, China’s highest ruling body. He is largely
inspection. The draft drew on the experience of some pilot prac- surrounded by reform-minded advisers and has given no sign
tices in the Shanghai Free Trade Zone (SFTZ), with some lists that he will retreat from his agenda. He has until 2020 to get
more open to foreign investment than the “Negative List” of what he wants done, and the government is moving on key areas
the SFTZ.11 like financial reform and a host of other issues, such as allowing
private companies to move into sectors now dominated by
Still, the core of the reform agenda is financial liberalization state-owned firms.” 2
in general and interest rate liberalization in particular. Fixed-as-
set investment in 2013 (investment in plants, equipment and Part of this market transition is the perceived uneven en-
infrastructure) in China was 45 percent of GDP, while house- forcement of China’s six year old anti-monopoly law.
hold consumption was only 36 percent of GDP. A Newsweek
media report indicates that it is a “critical part of the reform According to Businessweek, a 2014 report by the U.S.-China
process for Beijing is essentially flipping those numbers” with Business Council shows that 86 percent of member companies
market forces, not the government, dictating where resources are “concerned about Beijing’s anti-monopoly enforcement
should go in China’s economy and market forces, not the gov- activity”, with 30 percent “fearing it will be used against them”.
ernment, allocating credit.2 The report said that China has stepped up investigations into
the auto industry and conducted “dawn raids” at foreign IT
Newsweek notes that “the subsidized system has led to companies16. Also according to Businessweek, a separate 2014
overcapacity across the manufacturing spectrum in China’s survey by Beijing’s American Chamber of Commerce in China
economy. That in turn increases deflationary pressure, as too found that 60 percent of respondents “believe foreign business
few companies have the pricing power to increase profits. is less welcome in China than before”, up from 41 percent late
Banks tend to lend money almost unthinkingly to favored last year. Nearly half of those surveyed said they have been
local employers—often state-owned themselves, usually big targeted in pricing or anticorruption campaigns16.
employers in any case, with close ties to local party officials. Since
local party officials were usually evaluated by the growth in jobs The U.S. Chamber of Commerce, the U.S. China Business
created in their own districts, all the incentives were aligned in Council, the European Union Chamber of Commerce in China
one direction: more. More investment, more factories, more and the American Chamber of Commerce in China all lodged
jobs—and more debt.” 2 complaints within a few weeks of each other in September
201417.
According to Newsweek, “to its credit”, President Xi’s new
government has already started to cool bank lending. Before In August 2014, Chinese regulators had levied fines of
interest rates can be completely liberalized, however, a deposit US$200 million on 10 Japanese auto-part makers for alleged
insurance system needs to be set up. Newsweek cites Zhang price manipulation. Audi AG, BMW AG and Mercedes-Benz
Ming, a senior research fellow at the Chinese Academy of Social parent Daimler AG also suffered similar pricing probes. Both
Sciences in Beijing, who quotes officials from the People’s Bank Microsoft Corp and Qualcomm Inc. were investigated for
of China and says that a national deposit insurance company will potential monopolistic activity. BMW, Audi and Daimler
responded to the investigations by cutting prices. Both Qual-
26
