China Economic Reform Scorecard - February 2015

The US-China Business Council (USCBC) is rolling out a reform scorecard on a quarterly basis to assess the actual impact of China’s reforms on foreign company concerns. The scorecard is divided into categories based on key themes for reform, such as the role of the state and the market, foreign investment, institutional reform, and others. The report assesses the impact of reform policies, both individually and as a whole.  In this second assessment, China’s economic reform policies to date have had a limited impact on American company operations.

Since China’s current leadership came to power in March 2013, senior government officials and agencies have spoken widely about economic reform. The November 2013 Chinese Communist Party Third Plenum – its annual meeting of China’s top political leadership – was a turning point in the government’s economic reform effort under President Xi Jinping. Post-plenum documents and official statements said the market should play a “decisive role” in China’s economy. Additionally, these same statements said that reforms should focus on fostering legal reforms, opening more areas to foreign and private investment, and changing how state-owned enterprises are owned and operated.

While China’s top-line reform message of “letting the market play a decisive role” remains compelling, the slow speed of reform in essential areas, as well as signs of protectionism in certain sectors,  continues to create uncertainty about whether policy changes will address market access and level playing field concerns of USCBC members.

Check out how the reform scorecard has changed since last quarter here.

Highlights:

  • USCBC’s latest assessment of China’s economic reform efforts continues to show limited impact on the top concerns of American companies doing business in China.  Recent months have seen mixed signals: positive reforms but also new policy developments that limit foreign company market access.
  • Since USCBC’s previous assessment in October 2014, a handful of new central government measures have been released that can or promise to make incremental improvements to the business environment for foreign companies, such as streamlined investment pre-approvals; standardized tax incentives at the local, provincial, and central levels; specialized intellectual property courts; three new free trade zones; and financial reforms.
  • At the same time, new concerns have emerged about policies that use “national security” to exclude foreign technology and non-technology companies from business opportunities in various sectors.
  • Overall, China’s reform efforts have yet to address core business issues like foreign investment restrictions, licensing, and other barriers that often benefit domestic companies. However, China’s reform program is in the second year of a timeline that the leadership has indicated will end in 2020.
  • Near-term opportunities for further progress on economic reform could come in the lead up to the March 2015 meetings of the National People’s Congress or in conjunction with China’s ongoing negotiations with the United States on a Bilateral Investment Treaty.
  • USCBC will continue to update this Reform Scorecard regularly to assess new policy developments and their impact on USCBC member company operations in China. Key areas that could signal progress include concrete policies to reduce investment barriers, boost the role of the market in the economy, create a level playing field for foreign and domestic firms, and promote rule of law, greater transparency, and independent regulators.