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China's Reforms Move May Just Be Bargaining Chip for US Negotiators    

Chinese Premier Li Keqiang speaks during a meeting with Bangladesh's Prime Minister Sheikh Hasina at the Great Hall of the People in Beijing, July 4, 2019.

Chinese Premier Li Keqiang recently announced a major economic reform move, saying China would scrap ownership controls on foreign companies investing in the financial sector next year, ahead of schedule.

"We will achieve the goal of abolishing ownership limits in securities, futures, life insurance for foreign investors by 2020, a year earlier than the original schedule of 2021," Li said while speaking at the Summer Davos in the Chinese seaside city of Dalian.

His government also will reduce restrictions next year on market access for foreign investors in the value-added telecoms services and transport sectors, according to the premier.

The announcements appear to be a response to a much discussed need for widening economic reforms and aligning the Chinese financial industry more closely with the international market. Some analysts contend, though, this may be part of Beijing's effort to counter U.S. President Donald Trump's criticism of China's opaque markets and move toward a settlement to end a trade war.

"The timing of the announcement suggests that it has more to do with the trade negotiations than anything else," said Julian Evans-Pritchard, China economist at consulting firm Capital Economics. "China is expecting some kind of concessions in tariffs."

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019.
U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019.

Li was speaking soon after talks between U.S. President Donald Trump and Chinese leader Xi Jinping at the G-20 meeting last month in Japan, which revived hopes of an early settlement in the trade dispute.

Lourdes Casanova, director at Cornell University's Emerging Markets Institute, attended the Summer Davos where Li made the announcement. She has taken a somewhat different view.

"China is coherent with their plan to be an open economy and its belief in the power of globalization, as Premier Li said at the Summer Davos in Dalian," she said.

She also pointed out that Li appeared to be equally tough as he indicated that China is going to blacklist certain foreign companies. "This seems to be in retaliation to possible blacklisting by the U.S.," she said.

Casanova warned it would be wrong to assume the year-long trade war has proven to be devastating to the Chinese economy, giving the U.S. an additional lever in trade negotiations.

"The Chinese economy is still growing at 6.2% and the forecasts are between 6 and 6.5%. This is very high growth for an economy of that size. So far, there is no sign of the weakening yet," she pointed out.

Crucial question

There also is the question about how international players in financial and other sectors would respond in terms of making preparations for what may be a game-changing move for many companies seeking to enter the world's second-biggest economy.

Evans-Pritchard is skeptical. "Being able to enter a sector is one thing and being able to compete with the existing players is another thing. This is going to be an area of contention."

He noted that foreign companies have eagerly entered other industry sectors once officials allowed it, though they later learned it is very difficult to survive and compete with local players receiving government support either directly or indirectly.

Regardless, it would be difficult for Beijing to show it was providing a level playing field to foreign investors. A recent survey by the American Chamber of Commerce in China showed that a majority of their members found themselves less welcome in the Chinese market in recent months than they had been in the past.

"At the moment, it is easier for Chinese companies to sell in the U.S. than it is for the U.S. companies to sell in China. It is still quite difficult for the Chinese to argue the U.S. needs to reduce its market barriers as compared to China," said Evans-Pritchard.

Changing relations

China recently cut the number of sectors subject to foreign investment restrictions, a widely expected move, to 40 from 48 in June 2018. This is seen as another move by Beijing, which is acting under U.S. pressure in the midst of the trade war.

Different views are being expressed about the possible outcome of the trade talks, which now are back on track after the recent Trump-Xi meeting.

"More generally, with talks now back on track, we're still hoping that a strong enforceable deal can be reached that addresses the structural issues that our members have long raised," said Tim Stratford, chairman of the American Chamber of Commerce in China, before making a significant observation.

"Both sides now realize that U.S.-China economic ties are not going to be the same as they were in the past; however, we have confidence that it can still be a very robust relationship," he said.