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Mon, Oct 09, 2006 - Page 10 News List

Protectionism gains strength in China

CLOSING DOORS Beijing wants to overhaul its economic model to better protect China's interests, which may make it more difficult for foreigners to do business there

AFP , SHANGHAI

China's open-door investment policy, the hallmark of the country's remarkable economic transformation, is being squeezed by a protectionist push that may make it tougher for foreigners to do business, analysts said.

Over the past few months China's ruling Communist Party has made it clear that after nearly 30 years of unparalleled growth, it wants to overhaul its economic model to better protect the nation's interests.

Overseas investors have been caught on the back foot as Beijing has in a wide range of industries recently set up new barriers to entry that have renewed uncertainty about risks involved in doing business in China.

Among the provisional rules that affect foreign investors are restrictions on mergers and acquisitions in several industries, a tightening of media distribution rights and limits on real estate purchases.

The action has come amid fierce debate in Beijing over the future thrust of China's economic reform, in which some officials fear that despite the nation's spectacular economic success its own firms are losing out to multinationals.

It has also come as Chinese President Hu Jintao (胡錦濤) and Chinese Premier Wen Jiabao (溫家寶) are expected to layout the crux of the country's policy guidelines at a key meet of the Communist Party that began yesterday.

At the close-door meeting of the Central Committee, Hu and Wen and nearly 500 members of the party elite will discuss the country's massive wealth gap and other issues that are inextricably tied to the economic agenda.

"The Hu-Wen administration has tried to adjust the economic development strategy," said Li Cheng, a China scholar at the Brookings Institute in Washington.

"It is seeking more domestic demand, less foreign trade, more social justice, less economic growth, more inland development, less favorable policies for its coastal regions," Li said.

China has justified the measures by citing the need to restructure its booming economy but also to lend a hand to domestic industries that are being outclassed by foreign competition.

Officials blame foreign corporations for unfair competition practices and because they command dominant positions through mergers, brand management and abundant capital, more must be done to protect local players.

The conservative view point is not new but is gaining ground, Li said.

"The new left view has been around in China for over a decade, but it has gained more momentum, and to a certain extent, this view is shared by Hu and Wen and many leading public intellectuals," Li said.

The apparent shift also underscores the tenuous legal environment for foreign investors in China even though the country is still opening up its industries as mandated by its membership in the WTO.

"As long as China doesn't have real rule of law, foreign -- as well as Chinese -- business people there will have to rely on the good will of the powerful to protect their interests," said Andrew Nathan, a China expert at Columbia University in New York.

While Chinese leaders insist that there is no reversal to the country's two-decade-old "reform and opening up policy" and that it remains committed to free and open trade, the policy rethink has sparked concerns.

"Regulations have always moved in one direction up until now and they have always been towards liberalization," said Standard Chartered's Stephen Green, a China economist familiar with the regulatory environment.

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