Friday, 21 June 2019

Better protection for foreign investment

This article by Ken Davies appeared in the China Daily Global Edition on 3 April 2019.

China's new Foreign Investment Law is a major step forward in the country's investment legislation. The task now is to develop appropriate regulations to implement the law and to ensure that these are put into practice. 
My work at the Organisation for Co-operation and Development (OECD) from 2002 to 2010 was largely to work with China's Ministry of Commerce and other government departments to improve China's investment environment so as to promote more and better investment for China's overall economic and social development. 
From 1978 onward, the reform and opening-up of China's economy had already resulted in immense progress. Before then, China had been an economic closed book. Trade had been a negligible proportion of GDP; by the 1990s, China had become one of the most open economies in the world. Foreign direct investment, starting from nothing, expanded impressively, contributing more than proportionately to China's economic expansion. But while FDI was often the big story in foreign media, domestic capital investment has always been a far bigger component of GDP.
While documenting this tremendous progress and the positive policies that produced it, my job was also to research the challenges that still needed to be faced and to offer policy options to the Chinese government on how to address them. 
In my first report (in 2003) I suggested that China did not need a plethora of different and confusing laws on foreign investment. On March 15, 2019, the National People's Congress adopted a single Foreign Investment Law of the People's Republic of China and abolished the Chinese-Foreign Equity Joint Venture Law, the Chinese-Foreign Contractual Joint Venture Law, and the Wholly Foreign-Owned Enterprises Law. These laws will be repealed on Jan 1, 2020, when the National Investment Law comes into force. 
Also in 2003, I suggested the abolition of the Catalogs for Guiding Foreign Invested Enterprises, which involved four lists (prohibited, discouraged, permitted, and encouraged) of investments that discriminated unnecessarily against foreign investment - to the detriment of China as much as to foreign investors. Instead, I proposed, China should, in accordance with international best practice, adopt a negative list, clearly spelling out those sectors closed to foreign investors. 
Article 4 of the new law does precisely this. it actually goes further than this by establishing the very advanced principle of pre-entry national treatment - to which the Ministry of Commerce was for a long time opposed. 
For those who are not familiar with international investment jargon, I will briefly explain. "National treatment" means treating companies the same, whichever country they come from, so that rights of management, use, enjoyment or disposal given to domestic (in this case, Chinese) companies are given equally to foreign companies. "Post-establishment national treatment," which occurs in some bilateral investment treaties (BITs), provides equal treatment only after a company has been allowed to invest in a country (an example is the Hungary-Ukraine BIT). "Pre-entry national treatment" means that foreign companies have equal rights with domestic companies also in establishing or expanding a company. 
The importance of this is that it gives foreign companies an automatic right to invest in a country, except in areas that are declared closed to foreign investment. Pre-entry national treatment is therefore a major step forward in China's policy toward FDI, one that puts it ahead of many other countries. 
One of the initial policies to attract foreign investors to China in the 1980s was the offer of fiscal incentives such as tax holidays and a lower tax rate for foreign-invested enterprises in Special Economic Zones. In my 2003 report, I explained why these were no longer necessary and should be phased out. This happened on Jan 1, 2008, when the Enterprise Income Tax Law came into force. The National Investment Law is constructed on the basis of that essential building block of equal treatment. 
One of the first sectors in which this increased openness is likely to be tested is government procurement. Article 16 of the new law explicitly states, "government procurement is to give equal treatment to products manufactured by, or services provided by, foreign-invested enterprises on the Chinese mainland". This has been a bone of contention between governments (for example, in Europe) that continue to complain that while they allow Chinese companies to bid for government projects in their countries, their country's companies are shut out from government procurement in China. 
Another area in which I am happy to see my vision realized (at least on paper, so far) is that of transparency. Article 10 of the Foreign Investment Law states that "In the formulation of laws, regulations, or rules relating to foreign investment, appropriate means shall be taken to solicit the opinions and suggestions of foreign-invested enterprises." The Chinese authorities already did this in the very open consultation that preceded the adoption of the Labor Contract Law passed in 2007 - so much so that labor lawyers complained the government had yielded too much ground to foreign companies in weakening its provisions. 
There are several provisions in the law that are essential components of a national foreign investment law. For example, Article 20 protects the investments of foreign investors against expropriation, except where this is done according to the law and appropriate compensation is paid. This is standard wording in investment laws, also in international investment treaties and trade agreements, and it really is important to potential investors. 
China deserves applause for passing this landmark law. Over the coming months and years we will see the implementation of regulations and experience how the law works in practice. The proof of the pudding will be in the eating. 
The author was the head of global relations, senior economist, and principal administrator in charge of policy cooperation with China in the OECD's Investment Division from 2002 to 2010. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Thursday, 2 August 2018

Can Donald Trump’s ‘bully diplomacy’ resolve real problems with China’s trade practices? by Ken Davies

This article appeared in the South China Morning Post on August 3rd, 2018:

It is not yet clear how the current trade dispute between the US and China will play out. It could develop into a full-scale trade war, or it might be resolved by negotiations which begin to address serious long-term problems in the relationship. The uncertainty stems in part from President Trump’s capriciousness, also from the heightened risk that every conflict produces.

Nobody Wins a Trade War by Ken Davies

This article appeared in China Watch on July 18th, 2018:

Freer trade has boosted world output and helped keep store prices low. Although there has been some “hollowing out” of manufacturing industry in advanced economies, this has generally been more than compensated for by growth in the services sector. The lowering of barriers to trade and investment has increased competition, so domestic producers cannot stand still, but have to innovate, enhance product quality, and improve customer service.

Friday, 8 June 2018

Chinability website inactive

Following the Catch-22 situation arising from a new and badly implemented regulatory requirement last year, site maintenance was rendered impossible, as then was renewal of site (URL) ownership.

Consequently, the URL has been transferred to a body calling itself "China Ability" in Wisconsin.

"China Ability" has nothing to do with, and nothing in common with, Ken Davies' Chinability.

It provides no information or analysis of China's economy or political system. Instead, it purports to offer financial advice.

From now on, all China-related material that would have been published on Chinability will be found here, on Ken Davies' Chinability blog.

You are welcome to contribute material and to continue adding your comments to all blog posts.

There is no plan as yet to re-open the Chinability website. If there is sufficient demand, I will start another site, probably with another name. You are welcome to submit opinions on this directly to the blog, for example as comments on this post.

Monday, 24 April 2017

Tears and Laughter: Is Golden Dragon Copper tarnished?

[Background: In September 2012, I was taken to see the site of the new Golden Dragon factory by the Mayor of Thomasville, Alabama. The ground had just been broken, so there was not yet much to see, but the story looked a promising one: a locality with a rural unemployment problem and a caring town government was about to host a production facility that would provide lots of jobs. Unfortunately, it seems Golden Dragon pursued employment, safety and other management practices more akin to those in China, with the result that there were fewer jobs than expected, at lower wages, and the factory has therefore been plagued with high labor turnover and low profitability. The sad thing is that these troubles could have been avoided if the management had chosen to seek advice on how to develop a profitable commercial strategy along with a multi-faceted, properly monitored set of responsible business conduct policies that would not only have complied with the law but would also have met the expectations of the community in which the company had chosen to establish its operations. Other companies considering greenfield investments of this kind would be well advised to take note.]

Articles citing Ken Davies in the South China Morning Post

Brexit offers HK golden opportunity

This article appeared in China Daily, Hong Kong Edition on 24 April 2017.

As outgoing Chief Executive Leung Chun-ying said earlier this year, Hong Kong business people and investors can turn the challenges of Brexit into new opportunities, and not just because the devaluation of the pound sterling since last June’s referendum vote has made United Kingdom property and other assets cheaper in terms of Hong Kong dollars.

Once out of the European Union the UK will be able to sign trade agreements on its own and will not have to wait for the signatures of the 27 other EU members, as is now the case.

Sunday, 23 April 2017

How Hong Kong is now seeing the best of times, the worst of times

Paul Chan is playing it safe

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 2 March 2017.

Only a few weeks into the job, and only months away from an impending change of Chief Executive, Financial Secretary Paul Chan's safest option was to continue his predecessor's 
economic strategy and refrain from any major initiatives. He did this well. 

President Trump and what he means for Hong Kong

This article by Ken Davies appeared in China Daily, Hong Kong edition on 16 November 2016.
Will President Trump be more realistic than Republican candidate TrumpWill he be calmermore rationalmore knowledgeableAnd what does this mean for the SAR
After the biblical three score and 10 years allotted to a manhis personality is pretty well fixedAnd you can't expect the sudden acquisition of wisdom and informationSo Donald JTrump willstill be Donald JTrumpa 70-year-old businessman who boasts of success despite four major bankruptcies and who promises to fix the worldor at least the United Stateswithout any whiff ofan actual policy
But Trump is now in a different situationHe can no longer rely on his showmanshipHe has to deliverAnd he will have helpers

How a Trump presidency could affect residents' lives in the SAR

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 30 May 2016.

In my last article, I sketched a worrying scenario for Hong Kong resulting from Donald Trump becoming president of the United States and imposing harsh trade measures on China. Today turn to the other policies that would have a direct impact on people in Hong Kong: Bolstering 
the US military in the East and South China seas and curbing immigration. 
As in the previous pieceI focus not on the candidate's sometimes unprepared and erratic pronouncements in public meetings but on the more considered statements on Trump's own 
websiteI also venture to guess how much these policies may be moderated if Trump is 
actually elected in November.

What a Trump presidency would mean for the SAR's trade sector

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 20 May 2016.

What will be the consequences for Hong Kong if Donald Trump is elected president of the 
United States?

At the moment it looks like Hillary Rodham Clinton will win the presidential electionThe odds at Ladbrokes - a gambling company in London that takes bets on world events - are currently 2/5 in her favorwith Trump second at 5/2. But Clinton voters may change their mindsor decide to stay homeand 
another terrorist attack in Europe could propel voters Trumpward

Because of the peculiar way in which Trump has appeared to make policy "on the hoofand then intensify extreme statements when the public reacts positivelywe need to distinguish between what he 
has said he will do and what he may be likely to do if he actually makes it to the WhiteHouse.

Hong Kong's vital role in Belt and Road

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 17 May 2016.
Beijing's top official in charge of policy toward Hong KongZhang Dejiangis set to participate ina summit on the country's Belt and Road program in Wan Chai on WednesdayThis marks anopening for Hong Kong to take an increasing role in the country's developmentit will be up to Hong Kong's business sector to take up the challenge
Zhang is chair of the Standing Committee of the National People's Congress andmoreimportantlya member of the Politburo Standing Committee of the Communist Party of ChinaHeis exactly the right person to talk about Belt and Road in Hong Kong at this junctureas he has aunique combination of experience as a former governor of Guangdongpioneer of the Greater Pearl River Delta cross-province initiative (including Hong Kong), and troubleshooter

Hong Kong plans to rejuvenate industrial estates

This article by Deng Yanzi citing an article by Ken Davies appeared in China Daily, Hong Kong Edition on 22 September 2015.

Hong Kong plans to rejuvenate its flagship industrial estates to attract more modern and specialized types of manufacturingsaid Allen Ma Kam-singchief executive of Hong Kong Science and Technology Parks Corporation.
The first phase is likely to see the building of more multi-story factory buildings by 2020, hesaidahead of the 2015 International Association of Science Parks and Areas of Innovation World Conference to be held in Beijing from Tuesday to Friday.

Hong Kong's children need other meaningful education experiences

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 22 May 2015.

Yet again, Hong Kong is up there with the world's best in math and science in its schools. When the World Education Forum opens on May 19 it will be presented with the latest results from the Organization for Economic Cooperation and Development (OECD)'s Programme for International Student Assessment (PISA), announced on May 13, that shows Hong Kong in second place globally. 
The rankings are based on math and science tests performed by 15-year-olds in 76 countries across the world. While the OECD claims that this is the most comprehensive international comparison it has yet performed, the countries surveyed do not this time cover the world's two most populous economies, the Chinese mainland and India.

Friday, 21 August 2015

Dead fish 死鱼

The disaster in Tianjin was of course, like so many others, a "disaster waiting to happen". Yes, a tragic cliché. I respond viscerally to incidents like this because as an infant I suffered permanent damage to my lungs living in Huddersfield, an industrial city in Northern England where the air used to be filled with fumes from the ICI sulphuric acid plant and many other polluting facilities. (ICI later moved to Scotland and has tried to move to Xiamen.) I then, unaware of its nickname, "The Smoke" or "The Big Smoke", moved to London, but moved out just before the big smog that killed thousands in just a few days.

And I remember Minamata Disease, Lucky Dragon III, Chernobyl, Bhopal and many more around the world. So it's not just China. But it is China now. The rest of us have learned something from these dreadful experiences. The London smog disaster was followed by the Clean Air Act that very quickly rendered "A Foggy Day in London Town" just a folk memory.

Friday, 5 June 2015

No standard blueprint for democracy

This article by Ken Davies appeared in China Daily, Hong Kong Edition on 21 May 2015:
On June 19 this year the world will celebrate the 800th anniversary of the sealing of the Magna Carta on the banks of the River Thames in England. What has this to do with constitutional development in Hong Kong?

Friday, 20 March 2015

OECD Economic Survey of China now out

20/03/2015 - After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path. Further reforms are now needed to ensure that future growth is resilient, inclusive and green, according to the OECD’s latest Economic Survey of China. The OECD forecasts that China’s GDP will grow by 7% this year and 6.9% in 2016.
“Following one of the most tremendous economic expansions in world history, China’s gradual transition
 towards a ‘new normal’ of slower, more sustainable growth is to be welcomed” 
OECD Secretary-General Angel Gurría said. “China knows how to grow at a blistering pace. 
The challenge now is to ensure that future growth occurs on a more durable and inclusive footing.”

Tuesday, 24 February 2015

Ken Davies' article on China's new investment rules (Nikkei Asian Review)

February 20, 2015 7:00 pm JST
Ken Davies

China's new investment rules: A step forward, but more is needed

The Chinese authorities are at long last starting to simplify the law on foreign investment in line with recommendations from trading partners and international organizations like the World Bank, the United Nations and the Organization for Economic Cooperation and Development. While this is a step forward, it does not yet provide a completely open and nondiscriminatory environment for foreign investors.
     The Ministry of Commerce, in charge of framing and implementing policies on both inward and outward investments, published a draft Foreign Investment Law on Jan. 19. This followed over a year of public consultation and there was a short window of opportunity -- until Feb. 17 -- for comments to be submitted before the law is finalized.

Saturday, 4 October 2014

Hong Kong: A Time to Talk

The students and Occupy Central have made their point in a self-disciplined and dignified way, spreading their message of democracy far beyond Central. It is now time for them to clean up the occupation sites, go home and resume talks with the government.

Thursday, 2 October 2014

Hong Kong: power to the people - but peacefully, please

I can not keep quiet about this situation.

The tear gas attacks on peaceful demonstrators last Sunday were outrageous. Since then, I have attended the occupation stretching from Admiralty to Central and taken some photographs, all of which are on my Facebook timeline which you can see by clicking here. I am adding to these pictures every day, so please come back often to see how things are developing.

Photo © Ken Davies 2014.
PI have spoken to demonstrators and of course I have been reading and listening for many months and years. I have also written some articles (like the one below) attempting to promote peaceful dialogue.

The demonstrations, and the demonstrators, are admirable. The numbers involved are far higher than the trivial estimates in the local and international media. I can not count so many people, but I have seen many crowds of this kind, both in Hong Kong and in other parts of the world, and this is now far beyond the tens of thousands. Yet the self-discipline is better than in most of the other demonstrations I have witnessed elsewhere. The youngsters (as striking students have clearly taken over from supposedly more mature democracy activists) are keeping the occupied area clean, they have brought their homework with them, the slogans are moderate ("Go on, Hong Kong!", "Genuine universal suffrage"), and the atmosphere is so relaxed that slogan posters have appeared saying that this is not a carnival but a political protest.

Friday, 25 July 2014

Bridging the gap with calm dialogue

[Article by Ken Davies in China Daily Hong Kong Edition on 25 July 2014]

Opinion on how to nominate the next Chief Executive (CE) candidates of the Hong Kong SAR in 2017 is deeply divided, with much name-calling and emotion clouding the issue. What is now needed is calm dialogue to find common ground so a consensus can develop around a workable, broadly acceptable solution.

The "pan-democrats" can not ignore Hong Kong's geopolitical location. The SAR is indisputably a part of China. The Basic Law stipulates that the method of selecting the CE must be reported for approval to the Standing Committee of the National People's Congress after endorsement by a two-thirds majority of Hong Kong's Legislative Council and the consent of the current CE. So central government leaders have to be happy with whatever arrangement is produced, or it won't happen.
Bridging the gap with calm dialogue
At the same time, those leaders can not ignore a poll (even if they view it as being illegal and invalid) in which over a fifth of registered voters showed their wish for public nomination of candidates. More fundamentally, the fears of a significant proportion of the population of an erosion of freedom and the rule of law need to be honestly addressed -- not brushed aside.

If this chasm is not bridged, there will be an increased risk of instability. There is ample scope for the "Occupy Central" movement, and maybe other groups, to engage in protests whose outcome is not easy to predict with certainty. So far, the police have shown decency and restraint, but they might find this difficult to maintain should demonstrations escalate and they face increased pressure to contain disruption.