Question

How Chinese laws affecting toward foreign business and importance of government to purchase goods and services？

Answer 1

As per the World Bank reports on Chinese FDI, China's FDI policies have evolved alongside economic development and strengthened institutional capacity.China made a radical commitment to services liberalization in its accession to WTO which triggered FDI in service industries. China’s FDI strategies emphasise FDI in environmentally efficient, energy efficient and high tech industries.

The Chinese revolution began in 1978 and the economy opened up to foreign investment, entrepreneurship was permitted, the role of agriculture sector was given emphasis and privatization controls were decreased. Special Economic Zones were created for foreign investment and soon became engines of economic growth.

China passed a new Invesment law in March this year that seeks to liberalize Invesment rules for foreign investors. Foreign businesses in China will now be granted level playing field with their Chinese counterparts. However, there are some issues that haven't been addressed in the new law. For instance, foreign businesses are required to share information from the reporting system with Chinese counterparts. This provision has been opposed by many foreign investors in China but China has chosen to ignore it. Further, a new mechanism for filing complaints has also been launched by the new law. But such cases will only be allowed to be heard in Chinese courts that are known to be politically controlled.

China has passed this law amidst growing trade tensions with the US. Lately, China has been attempting to ease off tensions with the US. For instance, China allowed yuan to appreciate in late 2017. Due to the Communist structure of the Chinese economy, it is rather difficult for foreign investors to negotiate favorable terms for investment. As such, their investment decisions largely depend on the policies framed by the Communist party. Though the new law still limits FDI in key sectors like public health, energy, airlines and the like, the new changes are likely to benefit investors looking to increase their foothold in the Chinese market.

Government Procurement :

The government of every country is responsible for ensuring efficient allocation of resources within the economy.For this purpose, governments require inputs for providing goods to the society. Due to the problem of scarcity of resources, countries often find themselves dependent on other countries for meeting the basic requirements. Globalisation has facilitated quick and easy movement of goods and services from one part of the world to another. Governments may approach the private sector for sourcing inputs for undertaking infrastructure projects for the development of the economy.

Public goods, like roadways and defense, as well as merit goods like education and healthcare are provided by the government.Public goods are fully government owned while merit goods are partially owned by the government; private sector is allowed to supply merit goods for more equitable distribution. It is for the production of these goods that the government needs to procure inputs from various sources. Government procurement is considered crucial for economic development and contributes considerably to the GDP.