New reforms to boost investment

The task of deepening the integration of China into the global economy is posing a series of challenges to the Chinese authorities as it requires improvements to the local standards of doing business, additional measures beyond the opening-up policy, and enhanced legislations, experts said.

China ranked 31st in the World Bank's Doing Business 2020 report, and among the top 10 fastest-reforming countries around the world for two years in a row.

What's more, in terms of the best environment for "doing business", China moved up the rankings by almost 50 places during the past four years, joining the world's top 30 countries.

The latest edition of the World Bank Doing Business report acknowledges the 10 economies that improved the most in terms of "ease of doing business" after implementing regulatory reforms: China, Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, India, and Nigeria.

These 10 economies implemented a total of 59 regulatory reforms, accounting for one-fifth of all the reforms recorded worldwide. Their efforts focused primarily on the areas of starting a business, dealing with construction permits, and trading across borders, the report said.

It indicated that, in 2018 alone, China implemented significant reforms in eight out of 10 "doing business" areas, from starting a business, through construction permits and getting electricity, to paying taxes and registering property.

Improvement in dealing with construction permits, for example, has been particularly notable. While only a few years ago, it took more than a year to get a construction permit in Beijing, now it takes just 93 days.

China has managed to combine the substantial progress in streamlining the regulations with enhancing their quality: it now scores all 15 points on the building control quality process, supporting public safety.

In March 2018, Premier Li Keqiang said in the annual Government Work Report that China would set the stage for municipal governments to implement a reform agenda.

Then standards of the Doing Business report became the benchmark, aligned with the central government's ambition to improve the competitiveness of the Chinese economy.

Following that, the Chinese government created working groups targeting each of the "doing business" indicators.

But, the doing business reforms may not be sufficient on their own to sustain China's remarkable performance, said Yang Shaolin, managing director of the World Bank.

"This is because the quality of the business environment goes beyond the doing business ranking.

"One important dimension of this is the environment faced by foreign investors. In recent months, China has taken some steps to improve legislation, through the Foreign Investment Law, and to reduce restrictions in, for instance, the financial or in the automobile sector.

"The legislative improvements are important. A key concern is consistent implementation, including at the local government level."

In addition, opening up key service industries would not only bring additional capital to China but enhance competition and contribute to higher productivity growth. It would also increase the chance of improving trade and investment relations with key partners and facilitate the conclusion of new trade and investment agreements, said Yang.

"This in turn would help to reduce the current uncertainty we face in the world economy and provide a boost not just to foreign but also domestic investment in China."

According to the Ministry of Finance, the next round of reforms to continually improve the business environment has started. The sample cities in China, to be evaluated by the World Bank for the next rankings, may be expanded to four from two (Beijing and Shanghai) in the report. The candidate cities, however, have not been identified yet.

Chinese Finance Minister Liu Kun said at a forum in Beijing on Nov 22 that in recent years, the Ministry of Finance, various government departments, and Beijing and Shanghai municipal governments have jointly participated in the World Bank's global business environment assessment and promoted a series of reforms, taking the "global best practices" as guidance.

The reforms also promoted opening-up, in line with the international rules and standards.

Although the World Bank's annual assessment measures the government's regulation from the point of view of domestic entrepreneurs, it is also correlated with regulation affecting foreign direct investment or FDI.

Foreign investment in China has been showing steady growth. According to figures released by the Ministry of Commerce, FDI rose 6.5 percent in renminbi terms and 2.9 percent in US dollar terms in the first three quarters of last year compared with 2018.

However, experts said that the US-China trade ties and the slowing Chinese economy may pile pressure on efforts to attract more FDI into the world's second-largest economy.

The new Foreign Investment Law, which came into force on Jan 1, is the latest move by China to improve the business environment, especially to encourage FDI.

The new law was approved by the National People's Congress, the country's top legislature, in March 2019. Overseas investors have been expecting this landmark law whose drafting began in 2015. Their hope is it will help improve the country's foreign investment policy framework.

Some key principles highlighted by the new law are: intellectual property rights of foreign businesses are deemed to be protected in the same way as the local firms; foreign investors can freely remit profits, capital gains and liquidation proceeds to their overseas entities, in renminbi or in foreign currency; and foreign investors should be equivalently treated as the Chinese companies (that is, they will enjoy the "national treatment").

"One of the key objectives of countries putting in place policies to encourage foreign investment is to lower barriers to business entry in order to stimulate domestic competition, provide local consumers with new products or services, expand employment opportunities and foster innovation－all of which are engines of growth," said Harry Broadman, managing director and chair of the emerging markets practice at the Berkeley Research Group and a member of the Johns Hopkins Faculty.

This new Foreign Investment Law, and its corresponding regulations that are implemented, mark one of the most significant developments in China's treatment of foreign investment, experts said.

Its new regulations intend to accelerate market opening reforms, level the playing field for foreign and domestic firms, and eliminate inconsistencies in the enforcement of laws, according to an article published by Dezan Shira & Associates, a Hong Kong-based pan-Asia, multi-disciplinary professional services firm.

Liu Shijin, deputy head of the economic committee of the National Committee of the Chinese People's Political Consultative Conference, said that China still has room to catch up with best international practices to improve the ranking across the "doing business" indicators, in particular in the areas of getting credit, paying taxes, dealing with insolvency and trading across borders.

It is also a measure to strengthen foreign investors' confidence of doing business in China, he said.

"So far, the financial institutions and products for small and micro enterprises should be increased; and more State-owned capital can be transferred into the social security fund to reduce companies' burden of paying social security fees. Further, the insolvency mechanism for companies should be improved," said Liu.

Wang Yiming, vice-president of the Development Research Center of the State Council, China's Cabinet, said there are still many areas that need improvement, such as the restrictions on market access, and limits on private capital in certain fields like finance, healthcare, and education.

"Market supervision also needs to be improved, and there is no buffer period for some places to implement the new regulatory standards, or there is a one-size-fits-all approach. The efficiency and ability of government services need to be improved, and the credit system needs to be more efficient for cross-sector and cross-regional credit services," said Wang.