You will understand why the latest opening-up policy targets these two areas. [Research Weekly] Looking at the profit data of foreign capital in Shanghai

The National Development and Reform Commission and the Ministry of Commerce issued the "Special Administrative Measures for Foreign Investment Access". Compared with the last revision, the 2021 version of the National Negative List for Foreign Investment Access, the number of restrictive measures in the new version of the negative list has been reduced from 31 to 29.

This adjustment deleted two foreign investment restrictions in printing and traditional Chinese medicine production, and also marked the complete removal of foreign investment access restrictions in the manufacturing sector.

It is worth noting that from 2018 to 2021, the negative list for foreign investment access was adjusted every year for four consecutive years, gradually reducing from 48 restrictive clauses to 31. The new version of the 2024 adjustment has been made three years later.

What does it mean that the negative list for foreign investment, which has remained unchanged for three years, will be reduced again?

Judging from the data, reducing restrictions on foreign investment is mainly to cope with the trend of shrinking foreign investment and promote the inflow of foreign investment.

However, the decline in foreign investment is not a phenomenon unique to the Chinese market, but a common "pain" experienced by the world after the epidemic. Weaker growth prospects, economic differentiation trends, trade and geopolitical tensions, industrial policies and supply chain diversification are all affecting investment patterns around the world.

According to the latest World Investment Report 2024, global foreign direct investment will fall by 2% to US$1.3 trillion in 2023. If the impact of transit economies is excluded, global FDI flows will fall by more than 10%.

Foreign direct investment in most countries has declined. The top two countries, China and the United States, have both declined to a certain extent, while the European figures seem to have increased slightly. However, if we exclude the high values ​​of transit economies such as Luxembourg and the Netherlands, which are mainly the capital flow centers of multinational companies, countries such as France and Spain have fallen more sharply than China and the United States.

Since the decline in FDI is a global phenomenon, it means that the pie is getting smaller. How to gain a larger share of the shrinking pie? Judging from the latest policies, China's opening-up strategy is changing.

A major highlight of this policy is that it completely removes restrictions on foreign investment in the manufacturing sector, which means that foreign investment can enter key areas of China's manufacturing industry more freely, including but not limited to high-tech industries such as new energy vehicles, high-end equipment, and electronic information.

As the "world's factory", China's manufacturing value added accounts for about 30% of the world's total, ranking first in the world for 14 consecutive years. Why should it relax restrictions on its livelihood?

Of course, first of all, this is a big pattern of "everyone makes money". According to the data, in 2023, my country's manufacturing industry actually used US$45.53 billion in foreign capital, accounting for only 27.9%, far less than the proportion of the service industry, which shows that there is considerable room. The comprehensive abolition of restrictions on foreign investment access means that foreign-funded enterprises will be able to participate more freely in all aspects of China's manufacturing industry, from research and development design to production and manufacturing to marketing, and achieve in-depth cooperation in the entire industrial chain. It also means that foreign capital can share China's mature and efficient labor market, complete and cheap infrastructure and transportation, etc.

Secondly, this is obviously a countermeasure to certain "wall-building" and "decoupling" actions. In June this year, the U.S. Treasury Department issued proposed rules for the implementation of the executive order on foreign investment, restricting American investment in China's semiconductors and microelectronics, quantum information technology, artificial intelligence systems and other fields. In fact, the so-called "security" and "self-sufficiency" of the industrial chain have a great impact on global FDI. Many countries are trying to promote the return of the industrial chain, giving priority to investment in their own countries in the process, but China has demonstrated its positive willingness to expand international cooperation and its determination to continue to promote high-level opening up with practical actions.

In addition to the reduction of the negative list, there is also a new policy this week.

Lei Haichao, director of the National Health Commission, said at a press conference that in the next step, we will promote more diversified medical services and pilot the establishment of wholly foreign-owned hospitals in nine cities in China, with Shanghai expanding the scope of the pilot program for wholly foreign-owned hospitals. The National Health Commission said that in addition to meeting the diverse and multi-level medical service needs of residents, this pilot program is also intended to promote a better business environment.

In addition to opening up wholly foreign-owned hospitals, foreign-invested enterprises are also allowed to engage in the development and application of human stem cell, genetic diagnosis and treatment technologies for product registration, listing and production.

The "China Foreign Investment Report 2024" shows that the service industry actually used US$111.92 billion in foreign investment, accounting for 68.6%. Taking Shanghai as an example, in the past three years, the top three industries in Shanghai that utilized foreign investment were all service industries. However, this year, the information technology service industry and scientific research service industry were the "hardest hit areas" of reduced foreign investment.

Based on the revenue of foreign-invested service enterprises in Shanghai in the first half of the year, we can see part of the reasons.

In the first half of the year, the total revenue of foreign-invested service enterprises was 3,108.98 billion yuan, with a profit of 272.151 billion yuan and a profit margin of 8.75%. Among the subdivided service industries, the industries with the highest profit margins are leasing and business services, and real estate services. The revenue of technology research service enterprises was 311.373 billion yuan, accounting for about one-tenth of the total service industry revenue, but the profit was only 12.411 billion yuan, with a profit margin of 3.99%, far below the average level of the service industry.

The two measures in the medical field are a major breakthrough in the opening up of the service industry. One is at the technical level. In the free trade pilot zones of Beijing, Shanghai and Guangdong and the Hainan Free Trade Port, foreign-invested enterprises are allowed to engage in the development and application of human stem cells, gene diagnosis and treatment technologies for product registration, listing and production.

Another is to promote wholly foreign-owned hospitals on a pilot basis in nine cities in China.

These two policies, one focuses on technology with the keyword "cutting-edge", and the other focuses on services with the keyword "high-end". Their common feature is that the investment potential has not been released, and as the people's diversified, differentiated and personalized health needs continue to grow, there are still large market gaps to be filled. This means that there is money to be made in this market, and it is expected to change the current situation of low profit margins in foreign-funded technology services.

During the bonus period of policy relaxation in 2014, Shanghai once focused on high-end modern medical services, focusing on the construction of projects such as the Shanghai International Medical Park and the New Hongqiao International Medical Center, with the intention of integrating high-quality medical resources at home and abroad, opening medical institutions, and providing high-end medical services. However, the policy later changed, and medical institutions were listed as restricted, limited to joint ventures or cooperation.

This policy has once again opened the curtain for the entry of foreign-funded hospitals. The new technologies and new concepts they bring will inevitably have an impact on the current medical model, but I believe that openness and diversification will ultimately improve the overall level of domestic medical services, promote competition and development in the medical market, and promote innovation and upgrading of the medical industry.