At a glance: The Ministry of Commerce (MOFCOM) released a policy outline that seeks to solidify China’s position in international trade, boost investment links and augment its ability to reshape global supply chains. By 2025 the policy aims to:
- Shorten the negative list on foreign investment and further open up the telecommunications, internet, education, culture and health care sectors
- Ratify the EU-China Comprehensive Agreement on Investment (CAI), increase links between Chinese provinces and US states and reinforce Russia-China ties
- Diversify imports of agricultural products and energy resources, and build stable regional supply chains between China and neighboring countries in Asia
- Improve the assessment of foreign investment deals for risks which may be of national security concern
MERICS comment: China will likely achieve its aim to diversify food and energy imports through stronger ties with developing countries and Russia. The extension of the friendship treaty between Russia and China in June shows that the two countries are increasingly leaning on each other amid tensions with the West. Conversely, China will have a tough time strengthening economic ties with the US and ratifying the CAI as human rights concerns continue to block the advancement of such agreements.
While the planned expansion of the national security review mechanism for foreign investment will increase uncertainty for foreign firms looking to invest in China, it is unlikely to seriously disrupt investment flows. Despite the tit-for-tat sanctions exchanged between China and the EU in March of 2021, EU companies are nevertheless increasing investment in China as the country remains an important source of revenue in the pandemic depressed global economy and a key market for future growth.
The shortening of the negative list will, for the most part, be of little benefit to foreign firms. Often industries are strategically selected where Chinese companies are already dominant, for example in telecoms. Health care appears to be the only new area where foreign companies could acquire significant market share. China’s rapidly ageing population makes absorbing high-quality medical services a top priority, offering an important opportunity for EU companies. All the same, foreign firms will need to be wary of the government’s changing agenda. As the clamp down on the education sector following recent measures to incentivize foreign investment indicates, the central government can quickly change course.
Policy name: 14th Five-Year Plan for the Development of Commerce
Issuing body: MOFCOM
Date: July 8, 2021
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