China opens economy further to foreigners as trade war bites

Prime Minister Li Keqiang says China will open car industry and financial sector with stalled trade talks to resume.

China cars
China has promised to open more of its economy to foreign investors as the world begins to feel the effect of the China-US trade dispute; here, a truck transports newly-manufactured cars at a port in Dalian in China [File: Reuters]

China is opening up more sectors of its economy to foreign investment amid a bruising trade war with the United States that is beginning to be felt from Asia to Europe.

Chinese Premier Li Keqiang told the World Economic Forum in Dalian that China would further liberalise its manufacturing sector, including the car industry, while reducing the negative investment list that restricts foreign investment in some areas.

He said the country would also end ownership limits for foreign investors in the financial sector in 2020, a year earlier than planned.

The announcements come after China and the US agreed at the G20 summit over the weekend to resume stalled trade talks. At the same meeting, G20 leaders warned of the growing risk to the global economy calling for a free and fair trade environment. The G20 represents the world’s 20 biggest economies.

In Dalian, Li said China will reduce restrictions next year on market access for foreign investors in areas including telecommunication services and transport.

On Sunday, China cut the number of sectors subject to foreign investment restrictions to 40, compared with 48 in the previous version, which was published in June last year.

Experience over the past year shows how difficult it is to reach a deal that goes far enough for the US side and is acceptable to China,” said Tommy Wu, a senior economist at consultancy Oxford Economics.

“The US wants China to halt what it sees as unacceptable policies and practices in industrial policy and technology transfer, including the use of subsidies. Meanwhile, Beijing has insisted that the positions of the two sides need to be equal, and it will not succumb to US pressure to change its industrial and technology policies.”

Global impact

Rising concerns about global growth have prompted some central banks, such as those in Australia, New Zealand, India and Russia to cut interest rates.

“Currently, global economic risks are rising somewhat, international investment and trade growth is slowing, protectionism is rising and unstable and uncertain factors are increasing,” Li said in Dalian, according to Reuters news agency.

“We should actively cope with this. Some countries have taken measures, including cutting interest rates, or sent clear signals on quantitative easing.”

Domestic indicators show activity at China’s factories is slowing.

The Caixin/Markit Purchasing Managers Index for June came in at 49.4, the second lowest since June 2016, in what Caixin said was a “challenging month”. A reading below 50 suggests a contraction. 

China’s National Bureau of Statistics said its PMI for June was unchanged at 49.4.

Wu said private companies, especially smaller firms that are more export-oriented, will continue to see slower export orders amid weak global trade and the continuing dispute between the US and China.  

“The data is a clear indication that China’s industrial sector is struggling,” said Nick Marro, an analyst at the Economist Intelligence Unit. “The PMI is sometimes a more useful snapshot of what’s actually happening in the economy, as opposed to the official headline GDP data, which is notoriously stable.” 

The June data shows a similar pattern in much of the rest of Asia, as well as in Europe, while manufacturing growth has also cooled in the US.

Boost needed

Although Wu believes the US-China trade truce is a “positive development” for economies around the world, he indicated that the resumption of talks does not mean that the US and China will reach a deal any time soon.

“We think that the existing tariffs will not be lifted, and China’s exports will be likely to remain under pressure,” he said. “Domestic demand has been weak, especially on the investment front, and the latest PMI readings are reflecting that.” 

Economists expect China’s policymakers to do more in order to keep the economy ticking over.  

The EIU’s Marro expects more stimulus measures over the next few months even as policies adopted earlier in the spring provide a boost to manufacturing output later in the third quarter.   

“We could see some of that domestic pressure start to alleviate later this quarter, even though a strong upsurge in manufacturing activity remains unlikely,” he said.

China is forecasting economic growth of 6-6.5 percent this year provided the trade dispute with the US does not worsen.

A central bank adviser said on Monday that meant “very big” stimulus measures to prop up growth would probably not be necessary.

Additional reporting by David Ho in Hong Kong

Source: Al Jazeera, News Agencies