China further eases foreign investment curbs

• New ownership easing steps to take effect 28  July 
• Affected sectors include banks, insurers, autos, agriculture
• China under pressure to improve market access from US, EU 

BEIJING (Reuters): China last week unveiled a long-anticipated easing of foreign investment curbs on sectors including banking, the automotive and heavy industries, and agriculture as Beijing moved to fulfil its promise to open its markets further.

The National Development and Reform Commission (NDRC), China’s top economic planner, published on its website a new version of the so-called negative list that sets out industries where foreign investment is limited or prohibited. The new list will take effect on 28 July.

The number of items on the negative list was cut to 48 from 63 in the previous version published in June last year.

In addition to confirming already announced pledges to remove ownership limits fully on industries such as insurance and autos within the next three to five years, China will also ease or scrap ownership caps on businesses including ship and aircraft manufacturing, power grids and the breeding of crops, excluding wheat and corn. The announcement comes amid scrutiny from China’s top trading partner, the United States, and the European Union. They have argued that Chinese firms have been largely allowed to invest freely in their markets while Beijing limits foreign firms’ ability to enter the world’s second-largest economy.

In trade talks between a US delegation led by Treasury Secretary Steven Mnuchin and senior Chinese officials in early May, the Trump administration officials asked Beijing not to distort trade through investment restrictions, sources familiar with the matter told Reuters at the time.

The US side also asked China to ensure that any investment restrictions or conditions imposed were “narrow and transparent”, according to the sources.

China has repeatedly said it will continue market reforms at its own pace, stressing it will make and implement decisions on opening up markets based on its own needs and not due to external pressure.

Foreign businesses say progress has been slow and promises of wider access have repeated previously announced reforms that are long overdue. China flagged in April that it would implement a number of the measures by the end of this year.

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

Foreign ownership limits for passenger car manufacturing will be removed by 2022, as already announced. Restrictions on power grids, passenger railway transport and shipping companies will also be lifted. “China has made some bold moves to lift investment restrictions in many industries – includeing many that could be considered strategic such as finance and agriculture,” said Zhengyuan Bo, senior analyst at GRisk, a political risk analytics firm in Shanghai.

“Nonetheless, it’s important for investors to follow the execution of these new rules closely because China may still pose strict capital requirements which may de facto preclude most foreign institutions from entering the Chinese market.”