Investors expecting policy push ahead of meeting

China's top leadership has repeatedly pledged to further attract and harness foreign investment ahead of a key meeting that will take up reform and opening-up as the central agenda, leading experts and executives to expect a range of forceful measures to benefit foreign businesses.

Despite global uncertainties and risks affecting investor sentiment, China should further open up its super-sized market, the experts and executives said, anticipating stronger policy support for expanding market access and a more enabling business climate for foreign investors at the coming meeting.

The third plenary session of the 20th Communist Party of China Central Committee will be held in Beijing from July 15 to 18, with discussions on comprehensively deepening reform and advancing Chinese modernization at the top of its agenda.

After the third plenary session of the 11th CPC Central Committee launched China's reform and opening-up drive in 1978, the upcoming plenum is widely expected to be a tone-setter for the reform priorities of the world's second-largest economy.

Foreign-invested enterprises have emerged as crucial contributors to China's efforts in constructing a new development paradigm, prompting multiple measures to stabilize foreign investment, according to a State Council executive meeting in June.

China is moving to expand market access and eliminate unreasonable restrictions, aiming to transform its immense market advantage into tangible benefits for foreign investment, the government has said.

China has long been an attractive destination for foreign investment, with its vast market, growing middle-income group, and improved business environment. However, the total scale of foreign investment flowing into the country in recent years has trended down despite being at an all-time high in absolute terms.

Foreign direct investment into the Chinese mainland, in actual use, totaled 412.51 billion yuan ($56.77 billion) in the first five months of 2024, around 28.2 percent lower than that during the same period last year, data from the Ministry of Commerce showed.

This downward trajectory in the size of foreign investment can be attributed to several factors, including global economic weakness, international supply chain restructuring, escalating geopolitical tensions and stricter investment scrutiny, according to a report from the China Macroeconomy Forum in May.

Moreover, both developed countries as well as emerging economies have introduced preferential policies to attract foreign investment, intensifying international competition faced by China in attracting foreign capital. According to statistics from the United Nations Conference on Trade and Development, countries implemented as many as 102 investment incentives in 2022, representing an increase of over 50 percent compared to the previous year.

As China's reform efforts enter a critical phase, the focus has shifted toward tackling key challenges hindering ease of doing business for foreign companies in areas such as market access restrictions, regulatory transparency, intellectual property protection, government procurement, and fair and impartial law enforcement, experts said.

As the manufacturing sector continues to be the primary area of attraction for foreign investment, removal of all market access restrictions on foreign investment in the manufacturing sector should be undertaken at a faster pace, with emphasis on high-end equipment manufacturing, said Wei Jianguo, former vice-minister of commerce.

Meanwhile, China has a massive market for various services, including telecommunications, healthcare, tourism and vocational exams, which could be opened up for foreign investors in a systematic manner. But the government needs to work toward aligning domestic standards with international norms, Wei said.

To this end, China has been taking proactive steps to advance its accession into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement.

By benchmarking against relevant rules, regulations, management practices and standards, China aims to identify areas where it can enhance its compatibility with global standards and practices and steadily expand its institutional opening-up, said Cui Fan, a professor at the University of International Business and Economics.

In addition, China should shorten the negative list for foreign investment and update the industry catalog that encourages foreign investment, reducing the number of restrictions and allowing for greater market access for foreign investors, Cui said.

China's revised national catalog places continued emphasis on manufacturing as a key sector to encourage foreign investment. Simultaneously, it seeks to promote the integration of services and manufacturing, while increasing support for advanced manufacturing, modern services, high-tech industries and environmentally friendly sectors, according to the National Development and Reform Commission.

Alongside providing attractive market prospects, efforts to better treat foreign enterprises on an equal footing with domestic companies and ensuring a level playing field for all participants are crucial as well, said Liu Xiangdong, deputy head of the China Center for International Economic Exchanges' Economic Research Department.

The State Council has vowed to encourage both domestic and foreign companies to participate in initiatives such as large-scale equipment upgrades, as well as government procurement and investment projects.

By providing a stable and predictable policy framework, China aims to instill confidence in foreign investors, attract long-term commitment, and facilitate their greater participation in the Chinese market, said Cai Wei, chief strategy officer of KPMG China Advisory.