Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

Continue Reading

Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

Continue Reading

Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

Continue Reading

Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

Continue Reading

Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading

Categorized | Financial

The door to China’s riches remains locked


Posted on March 31, 2015

This picture shows the traditional Chinese gate. This tye of gates, were frequently used at royal palaces and the garden of rich persons. Photo taken on: February 03rd, 2009

Deng Xiaoping’s historic programme of opening up to the outside world, started in the early 1980s, is also referred to as China’s “Open Door” policy. But some cynics suggest that “Open Gate” would have been more accurate.

As in a traditional Chinese courtyard home, they argue, one may enter through the compound’s main gate only to find all the doors to its various buildings closed.

    It is an experience that can seem familiar even today.

    Want to enter so-called “strategic” industries currently dominated by Beijing’s 120-odd centrally administered state-owned enterprises? Sorry, the doors leading to China’s energy, rail and telecommunications sectors — to cite just a few examples — are firmly locked.

    Want to manufacture and sell cars in the world’s largest automotive market? Then the only way through that door is with a 50-50 local joint venture partner.

    Some of the doors that foreign investors can walk through today were formally opened 14 years ago, when China acceded to the World Trade Organisation. However, for the multinational companies that so welcomed China’s accession, subsequent negotiating rounds failed to further open member nations’ markets. To foreign investors and Chinese reformers, the result was a “lost decade” in which Beijing’s appetite for bold market reforms dissipated.

    This lost decade had its compensations. Double-digit economic growth, an unprecedented infrastructure investment programme and soaring urban incomes transformed China into a very lucrative market for many foreign companies.

    Then, during the global financial crisis of 2008-09, the Rmb4tn stimulus unleashed by Beijing poured more fuel on the fire. Some executives now refer to the period as a “golden era”, the likes of which may never be seen again.

    Had China been included in the US-led Trans Pacific Partnership trade negotiations, Beijing could — in theory — have signed up to its first significant new liberalisation regime since joining the WTO.

    But Beijing is the toughest of negotiators, and Washington decided that it could get, say, 90 per cent of what it wanted in a “high-quality” trade agreement that initially excluded China. According to the Obama administration’s calculation, that was better than getting 60 per cent of what it wanted in a TPP pact that included Beijing.

    To try to force open some of China’s closed doors, the US is instead seeking a Bilateral Investment Treaty. This BIT is supposed to secure equal treatment for US and Chinese companies in both countries’ markets, with exceptions spelt out in a narrowly defined “negative list”.

    China’s rise confounds a splintered west

    Ingram Pinn illustration

    The transatlantic spat about China’s new Asian investment bank tells a cautionary tale. This latest collision between geoeconomics and geopolitics is a harbinger of battles to come.

    Continue reading

    In essence, the negative list is the investment equivalent of the more recent political compact between the ruling Chinese Communist party and the people of China. Where Mao Zedong tried to control all facets of people’s lives, Deng decided it was easier to ensure they did not cross certain lines — public criticism of the party being the most obvious. Similarly, a commercial negative list can specify the few sectors that foreign companies cannot enter — with everything not on the list theoretically open to investors.

    China’s negative list, however, has been delayed for so long now it risks becoming an almost mythic document.

    Western diplomats say the delay is not surprising given the vested interests at stake. Once a certain industry is opened to foreign investment, it is almost impossible to go back. A senior US Treasury official told reporters in Beijing on Monday that Washington “made clear it has to be an ambitious negative list”.

    One of the reasons the once vaunted Shanghai free-trade zone has been such a disappointment, investors suggest, is the lack of just such a negative list.

    The EU, meanwhile, is pursuing an even more ambitious Bilateral Investment Agreement with China. For Brussels, it is not enough for European companies to enjoy the same treatment as Chinese firms. The EU wants Beijing to liberalise the way it regulates all companies, Chinese included.

    Because of its loftier goals, Brussels’ agreement is expected to take longer to craft than Washington’s, as was acknowledged by China’s commerce minister at the recent session of the National People’s Congress.

    But until a robust Sino-US BIT and Sino-EU BIA finally do appear, many American and European companies will continue to find themselves stuck in the courtyard of China’s marketplace, knocking on closed doors.

    tom.mitchell@ft.com