It is common to hear Globalization, Global business, International Trade etc. The nations bound by the Global trade run into few hundreds and International agencies like WTO (World Trade Organization), GATT (General Agreement on Trade and Tariffs) play a major monitoring role in the global trade between the world trading nations. It is expected that the WTO nations adhere to a uniform code as per GATT so that their products can be exported to other nations and at the same time they are expected to import other nationsâ€™ products both tangible and intangible.
Against above background China a powerful business nation of Asia is going back on certain trade agreements preventing investments from foreign countries in some specific areas. In the context of macro financial management of the country this may not augur well for their future business particularly with advanced business nations of the world.
China has released new rules to prohibit or limit foreign investment in the latest tightening move that signals a major overhaul in outlook of the nation’s booming but flawed economic model.
In a wide-ranging directive published China’s key economic developmental agency laid out a comprehensive list that at its root highlights what it wants from overseas firms in an economy long dependent on their funds.
The long-awaited review not only unveiled Beijing’s future development plans but also suggested a concerted effort to slow the economy’s spectacular but unrestrained growth that has horribly damaged its environment according to some Chinese analysts.
It’s not only a change in the opening up policy but China is reviewing all its economic development and reform policies. In the past it was to their advantage without imposing any control, China just opened the doors and let whatever foreign investment come into the country. Now China doesn’t now want just rapid growth without paying attention to quality.
The powerful Beijing agency known as the National Development and Reform Commission identified and restricted areas from real estate and financials to oil and rare metals or off limits to overseas capital.
While those industries will be banned or restricted to foreigners, the agency will seek outside investment that can help China to protect its degraded environment, cut pollution and develop renewable energy.
Investment in high technology and advanced materials and equipment manufacturing will also be welcome, but those in production industries in which China has mature technologies and capacity will not.
The list underscored Beijing’s latest policy shift to restructure its export-driven economy whose booming but lopsided growth has for decades relied on top heavy government and foreign investment to expand.
The announcement was not in line with the global agreements as the government was contemplating readjusting its export-oriented trade policy in the face of the unmanageable trade surplus and surging foreign reserves that have topped 1.43 trillion dollars.
Over the past two years the government has trickled out new restrictions on various industries including tightening its hold on sectors deemed strategic, such as energy, and promulgated an anti-monopoly law.
Now this is a concern for the major trading nations with China as it indicates a clear turn towards protectionism. The overall direction should be (towards) more open industries rather than the opposite. The government is worried about resources and the rise in commodity prices, and wants to make sure that scarce resources are under control of domestic firms, but that’s the direction leading to protectionism.
Under the present Chinese guidelines, foreigners are barred from investing in non-renewable mineral resources, such as tungsten, tin, antimony, molybdenum, as will investment in small and mid-sized oil refineries. Refining of copper, zinc, aluminium and rare earths will be restricted and so will the exploration for gold, silver and platinum.
High-end real estate such as hotels, villas, offices and malls will also be limited, as will that in property agent companies and brokerages as part of efforts to cool soaring real estate prices nationwide.
Our conclusion is that such restrictive trade practices may adversely affect the China foreign Trade in the future and may even face isolation in some sectors.