China has offered to scrap foreign investment limits on a long list of sectors in hopes of avoiding U.S. tariffs, but the opportunities would have little impact, analysts say.
While the outcome of U.S.-China trade frictions is still unresolved, China has put a series of "opening-up" measures on the table as incentives for a deal to end the bilateral disputes.
Last week, China continued to dangle new investment breaks following the U.S. decision to proceed with imposing 25-percent tariffs on U.S. $50 billion (320 billion yuan) of Chinese goods.
The penalties on Chinese products containing "industrially significant technologies" will be imposed in light of violations of intellectual property rights (IPR) and "other unfair trade practices," President Donald Trump said in a statement Friday.
China quickly vowed to take retaliatory measures, but an official statement was initially unclear about whether they would apply only to tariffs or also the investment offerings that China has made in recent months.
"We will immediately take tariff measures of the same scale and intensity. All economic and trade outcomes of previous talks will now lose effect," a Ministry of Commerce spokesperson said.
Within hours, Beijing announced 25-percent tariffs on American goods valued at about U.S. $50 billion including agricultural products, vehicles, and seafood, the official Xinhua news agency reported.
But the threat of tit-for-tat trade penalties was soon followed by renewed promises of "opening-up" to foreign investment.
A statement by the cabinet-level State Council said China would press ahead with plans to widen market access by July 1. The government also pledged to strengthen IPR protection and raise limits on compensation for infringement.
While the extent of the new opening remains to be seen, U.S. economists have questioned the value of the investment breaks that China has offered so far.
On the surface, the potential opportunities appeared impressive. But analysts see the steps as restricted in scope and riddled with qualifications.
"It's important to distinguish between modestly expanded market access for foreign companies and broader industry liberalization," said Scott Kennedy, deputy director of China studies at the Center for Strategic and International Studies in Washington.
"China has signaled some of the former but none of the latter," Kennedy said.
Beijing's gambits began in April with an announcement from the National Development and Reform Commission (NDRC) that China would gradually phase out rules that have limited foreign shareholding in the auto sector to 50 percent.
The top planning agency said it would lift the cap for manufacturing special-purpose and new energy vehicles starting this year, eventually expanding the break to passenger cars in 2022.
The change in the rule was initially welcomed because China's automotive joint ventures have been a primary conduit for forced technology transfers. IPR violations have been the major source of complaints from foreign companies in China for two decades or more.
But within days, enthusiasm waned as the international auto giants said the break came too late following years of heavy investment in local partnerships and manufacturing.
The opening for foreign makers of electric cars was also narrowed by Chinese subsidies and preferences for domestic batteries, The New York Times reported. "Now the cheering has stopped," it said.
Similar reservations have clouded the responses to planned barrier-busting in industries including shipbuilding and aircraft manufacturing.
Morning-after disappointment also followed a Ministry of Finance (MOF) announcement on May 22 that China would cut tariffs on imported cars to 15 percent from 25 percent.
The Times called it a trade gesture "that may barely register," suggesting that foreign cars from abroad might only compete with foreign joint venture models.
Hoping for a deal
Since then, China has loaded its opening-up menu with more offerings, hoping for a deal to end U.S. tariff and investment threats.
On May 31, the Ministry of Commerce (MOC) said it would issue revisions to its "negative lists" of sectors that remain closed to foreign investment by June 30.
The two separate lists for China's free trade zones and the national market would create new openings in "energy, resources, infrastructure, transportation, commercial and professional services," Xinhua said.
But the report dimmed hopes for any immediate or blockbuster breakthroughs. MOC spokesman Gao Feng cited "a transitional period for some industries" and "specific opening-up measures that will be unveiled in the next few years."
On the same day, the State Council announced tariff cuts on 1,449 consumer goods, ranging from foreign shoes to refrigerators.
But based on the vague generalities of official statements, there has been little to suggest a sudden change in the preferential policies that have protected state-owned enterprises (SOEs) on their sluggish pace toward market reforms.
"We need to aim higher in attracting foreign investment," said Premier Li Keqiang at a State Council meeting on the day of the MOC announcement. "We should raise our innovation capacity in the new round of opening-up and see that all intellectual property is fully protected."
"No forced technology transfers will ever be imposed on foreign-invested enterprises, and IPR infringements will be penalized to the full extent of the law," Li said, seeming to imply that no infringements are taking place.
On June 5, a Xinhua report said that China had achieved "remarkable success in IPR protection," citing the State Intellectual Property Office.
The agency said that 192,000 cases of patent infringement had been investigated along with 173,000 cases of trademark infringement and counterfeiting in the past five years. The report made no mention of forced technology transfer complaints.
Little on offer
Kennedy said that little was expected to come out of the opening-up promises.
"We can expect gradual reductions in ownership caps and joint venture requirements and limited reductions in tariffs," he said. "These steps may lead to modest increases in inward investment and imports that redound to individual firms, but they will not fundamentally change the landscape of these industries."
"That is because the party-state will remain deeply involved in every one of these sectors, using all sorts of policies to favor certain technologies and companies over others," he said.
Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute, also saw little on offer that would affect China's economy or economic policies.
"I read the steps as diplomatic rather than economic," he said.
In shipbuilding, for example, Scissors cited the State Council's decision in March to give preliminary approval for a merger of China State Shipbuilding Corp. and China Shipbuilding Industry Corp., the country's two biggest SOEs in the field.
The combined company will dwarf its South Korean rivals, Bloomberg News reported.
"That is not an action of a government wanting more competition," Scissors said.
The proposed lowering of barriers in the financial sector was also seen as motivated by China's needs for fresh funds rather than an opening to international capital flows.
"In finance, they have been seeking private and foreign money due to debt problems, not because they're going to change the way capital is allocated," Scissors said.
Internationalization of the yuan
Financial markets are still awaiting details of plans outlined in April by People's Bank of China (PBOC) Governor Yi Gang, calling for eased limits on foreign-owned institutions including banks, asset managers, investment firms, and insurance companies.
So far, there seems to be little movement on a key pledge to speed the internationalization of the yuan by allowing convertibility on the capital account.
Speaking at the annual Boao Forum for Asia in April, Yi said only that capital account liberalization would take place "on a gradual basis, while keeping the exchange rate of the yuan stable," the official English-language China Daily reported.
Scissors said the statement offered nothing new.
"Capital account convertibility has been speeding up for 20 years," he said.
From the start of the latest round of offers, Chinese officials have stressed that the opening-up plans are part of China's existing development agenda and not a response to foreign pressure.
"The measures are major strategic decisions made based on an accurate estimation of China's current development level," and "have nothing to do with the ongoing trade friction with the United States," said MOC's Gao on April 12, according to Xinhua.
"I translate the claim that external pressure is not important as, 'We're not doing anything important, so external pressure is not important,'" Scissors said.
Even so, China has ample reasons of its own for opening up, since the country's official statistics have shown a dramatic falloff in the growth of foreign direct investment (FDI) this year.
Chinese reports have emphasized that FDI hit a record of 878 billion yuan (U.S. $139.9 billion) last year, rising 7.9 percent from a year earlier, according to the National Bureau of Statistics (NBS). But the growth rate has been declining for years.
The last double-digit growth rate was recorded in 2010, and FDI increases are now a shadow of the annual average of over 26 percent seen in 2004-2008, based on World Bank data.
This year, FDI growth has slipped even further, rising only 0.5 percent in the first quarter. Growth turned negative in April with a 1.1-percent decline from a year earlier, the MOC reported, leaving four-month FDI with a scant 0.1-percent gain.
Last week, the MOC announced that FDI in May improved with a 7.6-percent year-on-year gain, but five-month growth of 1.3 percent remained weak.
The figures may be a testament to the closing of investment opportunities in China rather than the progress in opening-up that officials have been promoting, adding internal motivation to the pressures from abroad.
But more of both may be needed to turn the FDI numbers around.
"China is not experiencing any great leap in market opening. Call this a tiny hop, at most," Scott Kennedy said.