Market barriers contribute to drop in China investment

US-China business group says Chinese foreign investment inflows fell 4% in 2012.

February 5, 2013
by The Associated Press

WASHINGTON—A US business group has voiced concern over market access barriers in China that likely contributed to a drop in foreign investment there last year.

The US-China Business Council’s president John Frisbie said that in a recent survey of its 230 member companies, nearly 10% of respondents reported that they had stopped or delayed a planned investment in China because of foreign ownership restrictions.

China, the world’s second-largest economy which is recovering from its own downturn, reported last month that its foreign investment inflows from all sources fell 4% in 2012 compared with 2011.

“I think the decline in foreign direct investment that China saw last year in part reflects the investment barriers,” Frisbie said.

Those obstacles were a more predominant reason than the uncertain global economic environment for US businesses withholding investment, he added.

According to China’s official investment catalogue, there are ownership restrictions in nearly 100 sectors, including financial services, agriculture, cloud computing, health insurance and hospitals, refining and petrochemicals and energy-intensive industries.

Frisbie said this was “moving higher up the scale of concern” for the council, which was formed 40 years ago to advocate for American companies working in China. It estimates the country is a $250 billion market for the US that will only grow as China’s middle class expands in the coming decade.

The survey, published in October, garnered responses from both US and China-based executives and represents the views of the council’s members. It included companies involved in manufacturing, services and primary industries like agriculture and oil and gas.

Despite the overall drop in foreign investment into China last year, that from American companies still actually rose slightly, Frisbie said, although it was less than half the amount of Chinese direct investment into the US, which hit record levels.

The council advocates stronger ties between the US and China. Frisbie described the current bilateral relationship was “fairly good” and on an upward trajectory despite continuing distrust. He suggested the two sides consider holding annual presidential summits.

He said it was too early to gauge the direction of reform under new Communist Party leader Xi Jinping, who becomes president in March. Washington is looking for Beijing to dilute the heavy state involvement in many sectors of China’s economy.

Among its other recommendations, the council is warning that cyber security concerns threaten the commercial relationship. Frisbie urged the two governments to address it. He steered clear of making specific recommendations other than for American companies to have the best information technology protections in place, regardless of where the cyber attacks are coming from.

©The Associated Press