China’s state-run media giant Xinhua is reporting that the world’s second-largest economy will soon be deregulating and restructuring key sectors of its industry, including oil exploration and mining, in order to facilitate greater foreign investment in China.
“In its new ‘special management measures’ addressing foreign investment,” reports by United Press International, Beijing's reform commission said the number of foreign investment-related restrictions will decrease from 48 to 40 items. For foreign investment into free trade "experimental" zones, China has decreased the number of restrictions from 45 to 37 items, according to Xinhua.” These bans and restrictions will be fully lifted by the end of this year.
In addition to lifting foreign investment restrictions on oil and gas exploration, China is also in the process of deregulating the development of molybdenum, tin and other mined resources, as well as the shipbuilding sector, call centers, “the development of wildlife resources,” and “Chinese utilities serving cities with populations of 500,000 or greater.”
David McConnell, director of marketing at Atlantis Investment Management says that China’s strong economic growth in past years is directly related to the country’s “increased pace of deregulation” in an article for Investment Week aptly titled “Deregulation helps China's economy.” McConnell says that China’s increased deregulation, as in the case of the ‘special management measures’ introduced this week, are leading to a more stable Chinese economy. “This has led to the rapid growth of the private sector, which aims to use the equity market to finance part of the expansion. We view this sector of the market as one of the economy's key drivers,” he writes. Related: Why The Clean Energy Revolution Isn’t Taking Off In Russia
McConnell goes on to say, “Having undergone serious structural reforms, particularly in the state-owned enterprises (SOEs) and, progressively, in its banking system,” he writes, “China has been transforming the nature of its economy from the boom-bust of the early 1990s to a more managed and steady growth pattern.”
In the past, China was already reliant on foreign trade, exports, and investments, but the country is now making a shift, as with this month’s decreased restrictions, toward foreign direct investment as well as boosting domestic consumption. “This mix should boost China's steady economic growth as exports have already proved to be too fickle as they hinge on external economic strength” says McConnell.
These latest moves by China, however, come at a time when its international trade relations are under great stress, thanks to a tit-for-tat more-than yearlong trade war with the United States. The Trump administration has levied tariffs on $250 billion of Chinese goods so far, and has threatened to place additional tariffs on goods as yet untouched by the trade war. As we reported earlier this week, Trump has warned that the U.S. “could hit $300 billion worth of these Chinese goods with a whopping 25% tariff, potentially setting the United States up for retaliation and ringing economists’ alarm bells around the country.” Related: Are Asian LNG Prices About To Rally?
Over the weekend, Trump announced that in one sector, at least, he would actually be lifting some of his own restrictions on China, which “barred American firms from selling critical tech and components to Huawei without a US government license.” Trump’s reversal on Huawei has caused many to speculate that tensions between China and the United States are easing and the end of the trade war may be in sight, but this speculation is not definitive. Consulting company the Eurasia group, as quoted by United Press International, says that "the temporary agreement does little to resolve the fundamental conflicts over trade issues that broke down talks in May and does not amount to a sustainable solution for Huawei."
While China’s foreign relations may still be on shaky ground, however, the country is heading in the right direction to open its economy to stabilizing foreign investments. By deregulating such key industries as oil, gas, and mining, China is setting itself up for a strong economic future, despite the ongoing trade war.
By Haley Zaremba for Oilprice.com
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