Introduction
Many new types of business in China are not planned by the government in China in recent years. Online taxi-hailing service and bicycle sharing are not in the original “positive list”. The negative list system is an important basis for giving play to the decisive role of the market in resources allocation.
Yi Gang, deputy governor of the People’s Bank of China, published an article on the implementation of the negative list system on market access nationwide recently. The so-called negative list means that all are allowed except those on the list.
Yi indicated that the government approval is shrinking and the market is playing a more important role in resources allocation in the reform of the negative list. According to relevant arrangement, China will implement the unified negative list nationwide from 2018.
The negative list will stimulate the market vitality and establish a new open economic system, which is significant to the financial industry. Market access is the first step in the opening of finance. It should carry out negative list approaches instead of government approvals and follow international practices, indicated Zhu Min, an economist at Tsinghua University and former deputy managing director of the International Monetary Fund.
State-owned and private enterprises to be treated equally under negative list system
“Under the negative list system, those not forbidden are allowed. The government authorities are clearly restricted while the positive list system is relatively vague,” indicated Chen Bo, a professor with Huazhong University of Science and Technology.
Chen further indicated that the negative list system can significantly reduce potential rent-seeking activities of the government and market uncertainties, which will further release the market vitality. The transformation of the management model from “positive” to “mixed” and to “negative” list will further loosen market access conditions.
Based on relevant arrangements, the negative list approach will be carried out on pilot in certain areas from December 1, 2015 to December 31, 2017 to explore a unified negative list and corresponding systems and mechanisms nationwide. It will implement the unified negative list nationwide from 2018.
The National Development and Reform Commission (NDRC) and the Ministry of Commerce released the draft of the negative list on market access in March 2016, specifying 328 items banned and restricted on market access. 96 items are banned and 232 items are restricted on market access.
Take Shanghai as an example, 8,940 new foreign investment enterprises have been established and 99 percent have been filed in the four years since the implementation of the negative list system. 17.2 billion U.S. dollars were attracted, more than double of the total of 20 years before the establishment of the free trade zone.
Many new types of business in China are not planned by the government in China in recent years. Online taxi-hailing service and bicycle sharing are not in the original “positive list”. The negative list system is an important basis for giving play to the decisive role of the market in resources allocation.
Yi also pointed out that it should be aware of the shortcomings in the negative list system on market access. Excessive items and management bodies and complicated procedures are involved in the contents of the draft.
It is learnt that the negative list mainly includes the negative list on market access and the negative list on foreign investment. The main difference is that they are for private enterprises and foreign enterprises. Chen indicated that negative list on foreign investment is relatively longer and reflects the national treatment to Chinese citizens. Firstly, SOEs and private enterprises will be equally treated under the negative list. Secondly, the negative list on market access clears the way for the list on foreign investment.
“Foreign investments and domestic investments will be treated differently as some industries concern about national security. In the long run, the difference will be gradually narrowed,” indicated Bai Ming, deputy director of the international market research department of the Ministry of Commerce.
Promote opening of finance
As a market access management method, the negative list approach has been widely adopted in promoting the opening of financial services industry across the country.
Shanghai released the first negative list guidance on the opening of financial services industry in the free trade zone on June 28, summarizing regulations on the access of foreign investments. It set out 48 special administration measures in ten categories on the establishment of financial institutes with foreign investment and the business management after the access.
Insiders believe that the guidance set clear regulations on the restrictions on the access of foreign enterprises. It also included the appraisal sector. It will play a key role in further opening the financial market and reducing regulatory barriers.
Chen indicated that the implementation of the negative list, including the supporting measures on Shanghai Free Trade Zone from the central bank and other financial regulatory authorities, will promote the competition in the zone and improve the efficiency of financial services. In addition, it will achieve the opening of capital accounts to certain extent and facilitate the investment and financing of enterprises.
For the opening of the financial industry, it will mainly consider the pre-establishment national treatment and the negative list in short term. “It should make more efforts in lifting the restrictions on the shareholding proportion, the business scope and the issuing of licenses,” indicated Huang Yiping, an economics professor of Peking University.
Advancing the negative list approach in the financial services industry has its shortcomings. It will bring challenges to the financial stability, the applicability of financial laws and the financial regulatory ability in the transformation from the positive list to the negative list and will shock the protection of the interests of financial consumers, indicated Xiao Benhua, professor of Shanghai Lixin University of Accounting and Finance.
Yi believes that it should learn from the experiences on pilot and improve relevant systems. Firstly, it will improve the negative list on market access. Secondly, it will implement supporting systems. Thirdly, it will strengthen regulation during and after the process. Fourthly, it should eliminate various regulations and practices impeding the unified market and fair competition.
“As for possible risks after the cancellation of approval, it should strengthen regulation during and after the process, specify the contents, methods and means of regulation and establish a unified and efficient system for data collection, testing, analysis and alarming.” Yi indicated.
Translated by Star Zhang
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