China's open-door policy continues to unwind

The 2019 China Development Forum is currently underway in Beijing with the theme focusing on a further opening-up of the country's economy.

According to Chinese Commerce Minister Zhong Shan, foreign direct investment (FDI) into China rose by 3 percent year-on-year to 135 billion U.S. dollars in 2018, which marks a significant slowdown from 7.9 percent in 2017.

Does this imply that China is getting wary of foreign investment? This is juxtaposed with a steep decline of outbound direct investment (ODI) in North America and Europe by Chinese firms from 110 billion U.S. dollars to a mere 30 billion U.S. dollars during the same period. Does this mean China is reversing its “going abroad” policy?

Until recently, doubts have loomed large as to whether China has lost the momentum to further open its market and continue with its reform agenda against the backdrop of anti-globalization and populism.

Nonetheless, the approval of the Foreign Investment Law by the country's top legislature – the National People's Congress (NPC) – in March 2019 helps to disperse much of the hanging clouds.

The law, which aims to create a fair and transparent business environment to provide an equal level playing field for foreign and domestic firms, has consolidated three preexisting regulations, namely, the Foreign Enterprise Law, China-Foreign Equity Joint Venture Law and China-Foreign Contractual Operation Law.

In addition to the streamlined legal framework, it offers improved protection of intellectual property rights by forbidding forced technology transfer, promises equal pre-establishment treatment and equal access to government procurement, and sanctions the negative list for all types of foreign companies.

As a matter of fact, China has still managed to stand out in its FDI inflow with a positive figure as the world's second largest recipient in spite of the decrease compared to last year. And multiple factors have contributed to the drop of ODI from China, such as China's past policies to control capital flight and the duplicitous national security review in the U.S.