China’s State Council Issues Opinion on International Cooperation and Competition

June 6, 2012 Posted by China Briefing Reading Time: 4 minutes

By Xiaolei Gu and Sheryl Song

Jun. 6 – In order to adjust to the ever-changing international environment and to further the structural transition of the Chinese economy, the State Council approved the “Guiding Opinions on Accelerating the Cultivation of New Strengths in International Cooperation and Competition Jointly Released by Eight Departments (guobanfa [2012] No 32, hereinafter referred as the ‘Guiding Opinions’)” on May 24. The Guiding Opinions identify eight major goals and tasks, and also specify eight protective measures to boost China’s strength in international cooperation and competitions.

Major goals and tasks
The eight major goals and tasks include:

Optimization of foreign trade structures
Increased utilization of foreign capital
Accelerated implementation of the “going out” strategy
Improved regional opening-up patterns
Construction of an open innovation system
Increased international competitiveness
Steady advancement of financial internationalization
Deepened international economic cooperation

Among the abovementioned goals and tasks, the optimization of foreign trade structures, increased utilization of foreign capital, and the steady advancement of financial internationalization are of particular importance to foreign investors.

Optimization of foreign trade structures
The Guiding Opinions emphasize the cultivation of new export advantages as the country transforms its growth model from “Made in China” to “Created in China” and “Serviced in China.” By cultivating this transformation, China means to evolve away from low-cost, labor-intensive manufacturing towards the new core competitiveness of innovative Chinese industries.

Meanwhile, the government is also dedicated to gaining initiatives in foreign trade. This can be achieved by constructing an effective mechanism to regulate foreign trade, leading enterprises to lawfully compete in the international market, and increasing companies’ bargaining abilities.

Besides the transformation and upgradation of the manufacturing sector to a more innovation-oriented one, China also aims to bring about a geographical shift towards its central and western regions together with the development of foreign trade in services.

Increased utilization of foreign capital
The government aims at optimizing the structure of foreign capital utilization by combining a shift in the international manufacturing industry with the structural upgrade of the domestic manufacturing industry to actively encourage foreign investors to invest in more modern and technologically-advanced industries.

Under the existing foreign investment framework, the government will diversify the utilization of foreign capital, such as encouraging foreign companies to acquire domestic companies, supporting oversea listings, or bond issuances of qualified companies.

Increasing the efficiency of foreign capital utilization is another focus of the government. The Guiding Opinions point out the importance of selecting high-quality foreign investment that will bring not only foreign capital, but also advanced technologies and talented professionals.

Steady advancement of financial internationalization
The Guiding Opinions correspond with the government’s long-term strategy to internationalize the use of the RMB. It is noted that the government will accelerate the opening up of the financial market through expanding RMB-denominated bond issuances and RMB-denominated investment overseas.

Other than the opening up of the financial market, the government will also expand the use of the currency by promoting cross-border settlement in RMB for trade and services, as well as promoting the bilateral currency swap agreements with other countries.

Another focus of the government lies in the internationalization of financial institutions, which means that the government will support qualified Chinese financial institutions to expand their oversea services.

Protective measures
The eight protective measures include:

Improving foreign trade policy and accelerating the transition of foreign trade development
Strengthening the guidance of foreign capital utilization and improving the foreign investment environment
Strengthening the effect of the “going out” strategy
Building an open mechanism for technology and enhancing its core competitiveness
Promoting the reform of the financial system and increasing the openness of the financial market
Improving risk prevention mechanisms and effectively protecting economic security
Deepening the reform of the foreign-related economic system and improving management on the macroeconomic level
Actively participating in economic diplomacy and ensuring mutual benefits and development

Improving foreign trade policy and accelerating the transition of foreign trade development
Based on the transformation of foreign trade development and the optimization of foreign trade structures, the government will establish a policy mechanism that complies with both domestic situations and international rules.

The government will further remove the obstacles in foreign trade through perfecting the export quota and licensing system and the trade administration system. Meanwhile, the government will set up a regional customs cooperation mechanism to reduce redundant customs clearance procedures across different regions. Moreover, the customs clearance and foreign trade audit procedures will be simplified as well.

Strengthening the guidance of foreign capital utilization and improving the foreign investment environment
The government will make efforts to optimize the structures of foreign capital utilization and foreign investment by continuously updating “The Catalogue for the Guidance of Foreign Investment Industries” and “The Catalogue of Priority Industries for Foreign Investment in the Central-Western Region.” In addition, extra efforts will be put into strengthening R&D cooperation between Chinese and foreign enterprises.

The foreign investment administration will be further standardized by reforming the administrative system to facilitate foreign investment. The government will unveil policies to boost foreign investors’ enthusiasm in investing high-tech and innovative industries, as well as policies to boost the growth of the financial sector.

Promoting the reform of the financial system and increasing the openness of the financial market
The Guiding Opinions emphasize the steady advancement of financial internationalization, the government aims at actively participating in the reform of the international financial system while promoting the diversification of international reserve currencies. In order to provide a better environment for foreign entities to participate in the inter-bank bond market, the government will speed up the development of a sound bond market, and hasten the involvement of foreign enterprises in issuing RMB-denominated stocks.

Deepening the reform of the foreign-related economic system and improving management on the macroeconomic level
The government will improve the macroscopic regulatory system under a more opened-up market by better coordinating the fiscal, monetary, industry and competition policies with foreign trade, foreign capital utilization and foreign investment policies.

The management of the foreign-related economic system will be improved by accelerating the implementation of foreign-related economic laws and regulations, steadily loosening the cross-border capital trading restrictions, and improving the cross-border capital monitoring system.

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