China plans to suspend some laws governing foreign investment in proposed new free-trade zones including Shanghai as part of Premier Li Keqiang’s (李克強) drive to shift the economy toward services and sustain long-term growth.
The changes will push forward the development of such areas, provide innovative ways of opening up the economy, remove unnecessary administration and help transform the state’s role in the economy, according to a statement from the State Council on Friday after a meeting led by Li.
China is boosting efforts to attract foreign companies after investment from abroad fell last year for the first time since the global financial crisis. The government is looking to service industries and financial reform to drive economic growth of at least 7 percent a year as it shifts away from a dependence on exports and investment that led to environmental degradation, growing inequality and industrial overcapacity.
“The Chinese government knows that having foreign investment is a very good thing and they want this to be an attractive market for strategic and financial investors,” Kent Kedl, managing director for Greater China and North Asia for risk consulting firm Control Risks, said in a telephone interview.
“Many foreign investors are concerned about the bureaucracy and lack of clarity around regulations, that’s probably the biggest concern when they come in” to China, he said.
Foreign direct investment in China fell 3.7 percent last year to US$111.7 billion from a record US$116 billion in 2011, government data show. Investment rose 4.9 percent in the first half of this year to US$62 billion.
The American Chamber of Commerce in China has urged the government to open more industries to overseas investors and improve the climate for foreigners, while an EU business group has warned that optimism is declining and the regulatory environment is worsening.
The State Council will submit a draft document to the Standing Committee of the National People’s Congress, the legislature, according to Friday’s statement. If approved, the State Council will be allowed to suspend some laws on foreign investment, Sino-foreign joint ventures and cooperative enterprises in the free-trade areas, it said.
The statement did not give a time frame or additional details about the changes, which will apply to the proposed zone in Shanghai and any potential new ones.
While the State Council and Chinese media use the term “free-trade zone,” the meaning is more akin to a free-market zone, subject to less regulation and interference rather than an area of duty-free trade.
The State Council said on July 3 it approved a pilot program to set up the country’s first free-trade zone in Shanghai, describing it as an important move to adapt to global economic and trade developments, and further open up the economy.
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