Protectionism hindering input
Updated: 2016-11-04 08:40
People walk past a money exchange decorated with different currencies in Hong Kong, June 27, 2016. [Photo/IC]
Most economists would agree that foreign direct investment is a good thing; however, it is being hindered by protectionist measures. An obvious victim of this is China, with resistance to its investments increasing in the United States, Australia and recently in Europe.
As a result of tightened measures－that are claimed to be in the national interest－planned Chinese deals worth nearly $40 billion, or 14 percent of the total, have been scuppered since July 2015.
One possible reason for this Chinese investment-phobia is its explosive growth. Owing to the global economic slowdown, high asset prices and low-interest loans at home, China's outbound investment surged by 53.7 percent year-on-year in the first three quarters of this year.
Although it is not unreasonable for governments to review FDI in "sensitive sectors," some governments are claiming that an extensive range of sectors, from mining to agriculture, are "sensitive" and should be protected.
To stem this prevailing bias, specific actions are required.
For China, the government needs to accelerate reforms and opening-up, reduce red tape and improve access for foreign investment to create a fairer competition environment.
After almost four decades of reforms and opening-up, Chinese companies have become more market-oriented and profit-driven than many foreigners realize. But Chinese businesses that go global must ensure they abide by local laws and regulations and make their finances more transparent to gain the trust of foreign regulators.
For foreign regulators, they should extend to Chinese investors the same trust they give other foreign investors. They must also ensure that investment reviews are conducted transparently, and within a definite time and reference frame.
Communication and policy coordination should be enhanced to ensure countries safeguard their national interests without otherwise restricting their investment environment. Multilateral organizations, such as the G20, should reinforce policies that curb protectionism and promote global investment.
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