Page 38 - 2017 White Paper
P. 38
7 White Paper on the Business Environment in China
powerful SOEs, raised SOE dividend payouts to the list, and stronger efforts to ease administrative approval
government, cut executive compensation, and sent burdens that impact foreign companies” (US-China
auditors to smoke out corruption and special interest Business Council 2014).
dealings” (Rosen 2014).
Newsweek notes that it is precisely these SOEs, the
In June 2014, shareholders in Hong Kong-listed Citic state-dominated sectors of the economy—banking,
Pacific recently approved a plan to buy the key operating energy, telecommunications, steel and autos, among
assets, including stakes in Citic Securities and Citic Bank, others, which have greatly benefited under the current
of parent Citic Group for US$36 billion. China Economic economic model, and which, and in many instances, may
Review hails this as “a landmark deal involving China’s “fiercely resist meaningful change” (Powell 2014).
first SOE to be run on market-like principles” which has
been “heralded as a blueprint for state enterprise reform A year later, after the recent Fourth Plenum, Mr. Rosen
in the Xi Jinping-Li Keqiang era”, that the inclusion of stresses the urgency of the need for reforms to continue,
private shareholders into Citic Group’s assets “will [also] declaring in his report that “The most promising early
at least improve its transparency”(China Economic Review sign of reform would be the release of
a negative list
2014). The report noted many large SOEs including China explaining which industries are meant to be protected
Mobile and Sinopec have listed in Hong Kong and New from competition” (Rosen 2014).
York over the past two decades as part of government-
designed [SOE] restructuring (Ibid.). On November 4, 2014, the Chinese government asked
for suggestions from the public about the revised draft of
By late August 2014, Mr. Rosen’s report notes, the the Catalogue for the Guidance of Industries for Foreign
State Asset Supervision and Administration Commission Investment. The draft substantially cuts restrictive items
(SASAC) in Beijing was “broadening implementation of from 79 to 35, further lifting the restriction of foreign
governance reforms at central SOEs, and more than 20 investment shares, cutting restrictions of “joint-venture/
provinces had published SOE reform plans that involved cooperation” items from 43 to 11, and lifting items which
listing or selling off assets in up to 70% of provincial SOEs had to be “controlled by Chinese parties” items 44 to 32.
by 2017” (Rosen 2014). The draft removes restrictions for foreign investments
on iron and steel, ethane, oil refining, papermaking, coal
On issues directly and specifically relating to chemical equipment, automotive electronics, hoisting
foreign investors in China, however, it is noteworthy machinery, electric transmission and transformation
that the Decisions is still unclear. While President Xi’s equipment, brand liquor, feeder railway, subway,
administration is proposing to permit changes to SOE some pharmaceutical products and other general
ownership structures, it is not clear if foreign investors, manufacturing industries. Worth mentioning here is
with US$ 1.35 trillion in operations in China, are allowed that these industries with removal of foreign investment
to buy out and restructure SOEs in the form of joint restrictions have overcapacities (Xiao 2014).
ventures. In addition, while the Decisions promises due
process and fair competition policy to private Chinese The draft also removes restrictions for foreign
firms with regards to operating against SOEs, it is not investment on e-commerce, financing companies,
clear if “private” also means “foreign private” firms (Rosen insurance brokers, franchises, land development, and
2014). import and export commodity inspection. The draft drew
on the experience of some pilot practices in the Shanghai
The US-China Business Council, in its latest Economic Free Trade Zone (SFTZ), with some lists more open to
Reform Scorecard, declares that “while China’s economic foreign investment than the “Negative List” of the SFTZ
reform plans have the potential to promote reform in (Xiao 2014).
ways that address market access barriers and operational
challenges of concern to foreign companies, these Still, the core of the reform agenda is financial
reforms have had only a limited impact to date. “The liberalization in general and interest rate liberalization in
Scorecard goes further to state that its main “areas to particular. Fixed-asset investment in 2013 (investment in
monitor for progress include revisions to China’s foreign plants, equipment and infrastructure) in China was 45 %
investment laws, future reductions in the SFTZ negative of GDP, while household consumption was only 36 % of
38
powerful SOEs, raised SOE dividend payouts to the list, and stronger efforts to ease administrative approval
government, cut executive compensation, and sent burdens that impact foreign companies” (US-China
auditors to smoke out corruption and special interest Business Council 2014).
dealings” (Rosen 2014).
Newsweek notes that it is precisely these SOEs, the
In June 2014, shareholders in Hong Kong-listed Citic state-dominated sectors of the economy—banking,
Pacific recently approved a plan to buy the key operating energy, telecommunications, steel and autos, among
assets, including stakes in Citic Securities and Citic Bank, others, which have greatly benefited under the current
of parent Citic Group for US$36 billion. China Economic economic model, and which, and in many instances, may
Review hails this as “a landmark deal involving China’s “fiercely resist meaningful change” (Powell 2014).
first SOE to be run on market-like principles” which has
been “heralded as a blueprint for state enterprise reform A year later, after the recent Fourth Plenum, Mr. Rosen
in the Xi Jinping-Li Keqiang era”, that the inclusion of stresses the urgency of the need for reforms to continue,
private shareholders into Citic Group’s assets “will [also] declaring in his report that “The most promising early
at least improve its transparency”(China Economic Review sign of reform would be the release of
a negative list
2014). The report noted many large SOEs including China explaining which industries are meant to be protected
Mobile and Sinopec have listed in Hong Kong and New from competition” (Rosen 2014).
York over the past two decades as part of government-
designed [SOE] restructuring (Ibid.). On November 4, 2014, the Chinese government asked
for suggestions from the public about the revised draft of
By late August 2014, Mr. Rosen’s report notes, the the Catalogue for the Guidance of Industries for Foreign
State Asset Supervision and Administration Commission Investment. The draft substantially cuts restrictive items
(SASAC) in Beijing was “broadening implementation of from 79 to 35, further lifting the restriction of foreign
governance reforms at central SOEs, and more than 20 investment shares, cutting restrictions of “joint-venture/
provinces had published SOE reform plans that involved cooperation” items from 43 to 11, and lifting items which
listing or selling off assets in up to 70% of provincial SOEs had to be “controlled by Chinese parties” items 44 to 32.
by 2017” (Rosen 2014). The draft removes restrictions for foreign investments
on iron and steel, ethane, oil refining, papermaking, coal
On issues directly and specifically relating to chemical equipment, automotive electronics, hoisting
foreign investors in China, however, it is noteworthy machinery, electric transmission and transformation
that the Decisions is still unclear. While President Xi’s equipment, brand liquor, feeder railway, subway,
administration is proposing to permit changes to SOE some pharmaceutical products and other general
ownership structures, it is not clear if foreign investors, manufacturing industries. Worth mentioning here is
with US$ 1.35 trillion in operations in China, are allowed that these industries with removal of foreign investment
to buy out and restructure SOEs in the form of joint restrictions have overcapacities (Xiao 2014).
ventures. In addition, while the Decisions promises due
process and fair competition policy to private Chinese The draft also removes restrictions for foreign
firms with regards to operating against SOEs, it is not investment on e-commerce, financing companies,
clear if “private” also means “foreign private” firms (Rosen insurance brokers, franchises, land development, and
2014). import and export commodity inspection. The draft drew
on the experience of some pilot practices in the Shanghai
The US-China Business Council, in its latest Economic Free Trade Zone (SFTZ), with some lists more open to
Reform Scorecard, declares that “while China’s economic foreign investment than the “Negative List” of the SFTZ
reform plans have the potential to promote reform in (Xiao 2014).
ways that address market access barriers and operational
challenges of concern to foreign companies, these Still, the core of the reform agenda is financial
reforms have had only a limited impact to date. “The liberalization in general and interest rate liberalization in
Scorecard goes further to state that its main “areas to particular. Fixed-asset investment in 2013 (investment in
monitor for progress include revisions to China’s foreign plants, equipment and infrastructure) in China was 45 %
investment laws, future reductions in the SFTZ negative of GDP, while household consumption was only 36 % of
38
