China's move to ease foreign investment curbs leaves trade experts unimpressed

  • China on Thursday eased restrictions on foreign investment in sectors ranging from agriculture to banking, as Beijing and Washington continue to spar in a widening trade dispute.
  • The move is seen as only a small step that’s unlikely to resolve the wider Trump administration assault on what the White House has characterized as China’s "unfair" trade practices.
  • The new rules, which take effect July 28, lift curbs on sectors including banking, automotive, heavy industry and agriculture.
A Chinese soldier stands guard in front of Tiananmen Gate outside the Forbidden City in Beijing.
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A Chinese soldier stands guard in front of Tiananmen Gate outside the Forbidden City in Beijing.

China on Thursday eased restrictions on foreign investment in sectors ranging from agriculture to banking, as Beijing and Washington continue to spar in a growing trade dispute.

But the move is seen as only a small step that’s unlikely to resolve the wider Trump administration assault on what the White House has characterized as China’s “unfair” trade practices.

China’s National Development and Reform Commission published a new version of its so-called negative list, which spells out industries where foreign investment is limited or prohibited. The new rules, which take effect July 28, lift curbs on sectors including banking, automotive, heavy industry and agriculture.

The move comes as Congress and the White House consider tougher restrictions on Chinese investment in the U.S., especially transactions involving American technology companies. That discussion follows a series of Trump administration tariff threats on Chinese exports to the U.S., including duties on $50 billion worth of Chinese products.

China’s top trading partners, including the U.S. and European Union, have criticized investment rules that leave Chinese firms largely free to invest in their markets while China limits foreign firms’ ability to enter the world’s second-largest economy.

Thursday’s announcement was greeted with skepticism by critics of China’s trade policies.

“Whenever the Chinese say, 'We're creating more space in our market for you to operate in,' there is still a long list of things you are not allowed to do,” said Derek Scissors, a China analyst at the American Enterprise Institute. “The Chinese simply don’t permit competition with a large range of their firms. They have a set of state-owned businesses they don’t allow to go out of business.”

"Whenever the Chinese say, 'We're creating more space in our market for you to operate in,' there is still a long list of things you are not allowed to do." -Derek Scissors, American Enterprise Institute

In addition to confirming already announced pledges to remove ownership limits on insurance companies and auto makers within the next three to five years, China is also easing or removing ownership caps on businesses including ship and aircraft manufacturing, power grids and new breeding of crops other than wheat and corn.

China first indicated in April that it would roll back a number of the foreign investment restrictions by the end of this year.

The changes announced Thursday include an earlier pledge to allow 51 percent foreign ownership of brokerages and life insurers, and to lift that cap entirely by 2021. Current rules limiting a single foreign financial institution’s stake in a Chinese commercial bank to 20 percent will also be abolished on July 28. The rule that investment by multiple overseas financial institutions in Chinese commercial banks must not exceed 25 percent will also be lifted.

“We expect China to really let some big foreign financial companies to come in to open branches, in areas such as securities, life insurance, funds,” said Xu Weihong, chief economist at AVIC Securities. “China may not let them all in at once, but we expect it to want to showcase a few success examples.”

Limits on foreign ownership of passenger car manufacturing companies will be lifted by 2022, a change that was already announced. Restrictions on power grids, passenger railway transport and shipping companies will also be lifted.

The timing of the announcement could signal that Beijing wants to avoid further escalation of the ongoing trade dispute with the U.S. But it’s not clear how far Thursday’s announcement will go in placating the Trump administration.

“I think they’re very confused about what the United States wants from them,” said Wendy Cutler, former acting deputy U.S. Trade Representative. “Our positions seem to change week by week in terms of what we’re asking them.”

China has long insisted that it will reform its economy and open its markets to outsiders at its own pace. So while Thursday’s announcement easing restrictions on foreign investors could help firms in those sectors tap new Chinese markets, the choice of sectors likely reflects areas where China wants and needs greater investment, according to Scissors.

"If you can come in here with a hybrid seed that does better in Chinese soil, we love you,” he said. “Until that business is established, and we’ll take it away from you."

— Reuters contributed to this report.