Anthony, some of these are good (I do need some of the numbers that you pulled, so that's great) but some need more analytical bullets. For example on the rule of law question put some bullets on the main points from our

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Anthony, some of these are good (I do need some of the numbers that you pulled, so that's great) but some need more analytical bullets. For example on the rule of law question - put some bullets on the main points from our last CSM on China's legal system. I do need a few numbers and facts, but we want to offer some STRATFOR analytical perspective so I really need some bullets for each question that encapsulates our main analytical stance in relation to the questions.

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Specific questions/points to be addressed:

Does the country have a stable legal system and rule of law? 

  • The concept of the rule of law originated in the West. It is not a product of Chinese culture. There is scarcely little foundation for this concept in Chinese legal traditions. Law has traditionally been equated with the concept of punishment and only referred to criminal law. For thousands of years, China was under this rule of punishment, or rule of criminal law. This rule was the rule of only one man, namely the emperor.

  • In 1997, for the first time in the Party's history, the 15th National Congress of the CPC explicitly incorporated the rule of law as a basic guiding principle in the Party's official document, and elaborated on the rule of law as a separate subject in the plan for the reform of the political system. They reflected a conscious move from "the rule by law" to "the rule of law", and an improved understanding of the rule of law from a technical perspective to a strategic one.

  • Two aspects call for particular attention when looking into the future of Chinese law. One is the influence of common law on Chinese jurisprudence. The other is the impact of China's entry into the WTO on China's legal development. Since the return of Hong Kong to China in 1997, two different legal systems-the common law system in Hong Kong and the socialist legal system in mainland China-have co-existed. In recent years, China has begun to adopt a number of principles and institutions from the common law system. Under China’s unitary legal system, all laws and regulations must conform to the Constitution and national law. Under the WTO, China is further committed to ensuring uniform application of the law, a complicated task in such a large, diverse, and rapidly changing country.

  • The combination of weak institutional infrastructure and continuing political interference by the Communist Party means China’s massive judicial system of over 3,000 basic courts and nearly 200,000 judges cannot yet guarantee the independent and consistent protection of citizens’ rights and interests or enforce government and private compliance with the law. Communist Party interference, poorly trained and compensated judges (especially outside the major cities), and corruption are among the many problems beleaguering the court system.

  • No one claims that today’s China is a “rule of law” country. Nonetheless, most would acknowledge that China has moved a long way from the primarily “rule of man” governance approach of traditional and Maoist China. China is slowly establishing elements of a “rule of law” system that increasingly provides mechanisms also to restrain the arbitrary exercise of state and private power and offers the promise, if not the guarantee, that Chinese citizens and other actors can assert their rights and interests in reliance on law.

  • China’s top leaders, committed to attracting foreign investment and making the country a respected world power, have promised to conform to human rights norms and to run the country “according to law.”

  • The Communist Party often does not subject itself to the laws it enacts, prompting cynicism about its real intentions.

  • In 1999, Chinese Constituion was amended to expressly provide for the establishment of a socialist rule-of-law state

  • Thre is considerable direct and indirect evidence that China is in the midst of a transition twoard some version of “Western” rule of law.

  • CSM - Two Tibetan monks were sentenced by a local court Aug. 30 to 10 years and 13 years in prison, respectively, for “plotting, instigating and assisting” in the March 16 self-immolation of a monk at Kirti monastery in Aba, Sichuan province. A third monk was sentenced the previous day to 11 years in prison for moving and hiding the injured monk. The case is unique, then, in that local authorities are actually pursuing open, legal methods to send them to jail.

Is there a tradition of government secession and stable transition in the country? If so, when will the next significant elections take place? If not, are revolutions and coups common?

  • One party Chinese Communist rule. Since Deng took power in 1978, the transition has been stable. Last three decades, everyone in the world knows who the next leader of China will be months before formal inauguration. Revolutions and coups are rare.

  • Taiwan is ultimate secession threat but China has done everything in its power to prevent, even to start Taiwan Strait crises. Uighur groups are not perceived as presenting a secessionist threat for Xinjiang.

  • China is set to experience a major leadership turnover at the 18th National Congress of the Chinese Communist Party in 2012.

  • Current top leaders, including President Hu Jintao, Premier Wen Jiabao, and Chairman of the National People’s Congress Wu Bangguo, are all expected to retire. As many as seven of the nine members of the Politburo Standing Committee, the highest decision-making body in the country, are expected to retire. Within the full 25-member Politburo, at least 14 leaders will vacate their seats to make way for younger candidates. Projections of spots available off a PDF file I have.

  • These 62 provincial chiefs are arguably the most important group to watch in the country’s ongoing midterm jockeying, as China’s provincial leadership is both a training ground for national leadership and a battleground for various political forces

  • Since 1977, the CCP has regularly held a National Party Congress every five years.

  • Age of leader most important indicator of leader’s future political prospects. Ex. Provincial cheifs are supposed to step down at 65 and only those under 63 are initially considered for the position.

What is the political and economic relationship like between the United States for China?

  • Total U.S.- China trade rose from $2 billion in 1979 to $457 billion in 2010. China is currently the second- largest U.S. trading partner, its third-largest export market, and its biggest source of imports. Because U.S. imports from China have risen much more rapidly than U.S. exports to China, the U.S. merchandise trade deficit has surged, rising from $10 billion in 1990 to $273 billion in 2010.

  • China’s large population and booming economy have made it a large and growing market for U.S. exporters. U.S. imports of low-cost goods from China greatly benefit U.S. consumers by increasing their purchasing power. U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs and become more globally competitive.

  • China’s purchases of U.S. Treasury securities (which stood at nearly $1.2 trillion at the end of 2010) help keep U.S. interest rates relatively low. On the other hand, many analysts argue that growing economic ties with China have exposed U.S. manufacturing firms to greater, and what is often perceived to be “unfair” competition from low-cost Chinese firms. They argue that this has induced many U.S. production facilities to relocate to China, resulting in the loss of thousands of U.S. manufacturing jobs. Some policymakers have also raised concerns that China’s large holdings of U.S. government debt may give it leverage over the United States.

  • Other Sino-US issues: China’s refusal to allow its currency to appreciate to market levels, its mixed record on implementing its World Trade Organization (WTO) obligations, its relatively poor record on protecting intellectual property rights (IPR), and its extensive use of industrial policies and discriminatory government procurement policies to subsidize and protect domestic Chinese firms at the expense of foreign companies.

Who are China’s primary trading partners?

Is there material regional differences found in the country, such as tribal and religious influences?

  • Rural income and consumption disparities have increased in recent years between the “haves” of the eastern coastal regions and the “have-nots” of interior China.

  • This disparity has been a major issue factoring into policy making. In China’s 12th Five-year Plan period (2011-2015), a major focus is putting citizen interests first and paying more attention to improving people's wellbeing and pursuing common prosperity as a result of rising stability concerns in recent years. The government wants to narrow the income and public service gap between rural and urban groups to keep the social unrest at a minimum.

  • Subsidies have been a recurring pattern of policymaking to address this issue. Past initiatives have included compulsory education, medical care, agriculture direct subsidy, social security, and household appliances. Furthermore, subsidies generate domestic, albeit minimum demand, another significant policy of the five-year plan to achieve sustainable growth.

  • There are 56 officially recognized ethnic groups. The largest is the Han Chinese, numbering 900 million, who reside in every region of the country. The smallest group is the Hezhen, living in the far northeast, with fewer than 2,000 people. Generally, the minorities live far from the major economic and political centers of power. Unrest of any kind is usually dealt with harshly from the CPC.

What is the general business structure found in each country and are there families or other types of entities that control large components of business?

  • State-Owned Enterprises (SOEs) remain a dominant part of the Chinese economy, especially among certain strategically important sectors, such as infrastructure construction, telecommunications, financial services, energy and raw materials, in spite of the Chinese Government’s efforts towards privatization since 1978 and its commitment to market-oriented development. China is virtually unique in its state dominance of all major segments of the financial sector. Chinese SOEs still dominate in the automobile, steel, and other metals industries; state enterprises have largely been withdrawn from these industries in most other countries on the grounds that state ownership is unnecessary and less efficient than private ownership. The continued role of Chinese SOEs in these sectors at least partly reflects policies pursued since the 1980s to emulate earlier attempts by Japan and Korea to develop “national champions”.

  • The Second National Economic Census conducted ( in 2008 reveals that of all the 208 trillion RMB total assets of the secondary and tertiary sectors (industrial and service sectors), 63 trillion – or 30 percent of total – was held by SOEs. Meanwhile, in terms of enterprise number, there were 154,000 SOEs at the end of 2008, only accounting for 3.1 percent of the total enterprise number.

  • SOEs control a substantial part of total enterprise assets in China despite the fact that their total number is marginal. The average size of SOEs is much bigger than that of non-SOEs. This is indeed the case.

  • Private firms, domestic and foreign, which have played a critical role in China’s growth, face substantial capital access barriers.

Is corruption common? Is it possible to conduct business in the country without violating the U.S. Foreign Corrupt Practices Act or other regulations? How does “corruption” manifest itself in business? China: Guanxi and Corporate Security

  • China’s substantial corruption challenges are deeply rooted in cultural traditions as well as the country’s complex transitory conditions. Further, corruption is increasingly growing in significance as a political issue in China, and in an international context, China’s corruption problems have attracted extensive attention. Deficient center-local relations is another reason why central authorities have been unable to effectively check rising local-level corruption. In a perverse way, the lure of corrupt income is an incentive for cadres to keep the economic boom going.

  • Chinese leadership is acknowledging that corruption remains a major economic constraint, and the leadership is therefore currently pursuing a substantial anti- corruption campaign.

  • With China’s accession to the WTO in 2001, transparency has improved much, and increasingly laws and regulations are in line with WTO requirements.

  • Sources of Corruption:

    • 1. Opportunities and incentives created by the reforms. Examples include a two-track pricing system that allows some to buy key commodities at low prices, and then to sell them at large profits on the free market; money to speed up the process of the bureaucracy; public funds being expropriated by corrupt officials for their own purposes, etc .

2. Incomplete nature of reforms and their inconsistent application in practice. Examples include poorly defined property rights and business practices leave a regulatory void to be

exploited; lack of legitimate channels of access between bureaucrats and entrepreneurs leads to networks operating behind the façade of a government agency or a state-owned enterprise; changing and inconsistently enforced tax policies, and a politicized, poorly- organized system of banking and finance create numerous opportunities for favouritism, kickbacks, and outright theft.

  • There is little evidence that anger over corruption has reached critical levels in cities. So far, the central leadership has been able to cast itself as an opponent of corruption and defender of the little guy who bears the brunt of local-level malfeasance.

  • While corruption doesn’t appear an imminent threat to the CPC ruling status, the political costs in terms of damage to the party’s reputation and legitimacy over the long term do, however, bear watching.

In regards to the regulatory environment, are the same regulations in place and enforced for foreign businesses as they are for domestic enterprises? 

  • Ministry of Finance smaller than its counterparts in many other countries

  • Complex, opaque and often poorly enforced laws and regulations have long been a concern to China’s trading partners and foreign investors, and were a major element in China’s commitments under the WTO.

  • The law on government procurement adopted in 2003 prohibits unreasonable discrimination among suppliers, including foreign suppliers.

  • China has gone further than many WTO members in improving regulatory transparency: it has established an inquiry point to provide authoritative clarification of laws and regulations affecting international trade, and has agreed to publish all laws and regulations in at least one official WTO language in addition to Chinese.

Are environmental regulations in place and are such regulations properly enforced?

  • China’s State Enviromental Protection Adminstration (SEPA) adopted a series of innovative enviormentl regulations but they have fallen short. China’s environmental protection bureaus (EPB) (difant huanbaoju), the agencies chiefly responsible for enforcement must compete w/ other government agencies for funding and influence. They are subordinate to local governments. Because local officials place growth before regulating industry, EPBs frequently lack resources or leverage to translate regulatory promise into environmental progress. In an increase in the EPB’s instutional capacity does not necessarily imply cleaner air and water. Regions with industries that have a greater capacity to abate pollution tend to pollute more, offsetting the potentially benefcial effects of stronger regulatory enforcement.

  • In March 2008, the CNPNC elevated SEPA to the Ministry of Environmental Protection. The reform strengthens the environmental protection sector’s administrative stability, political will, decisionmaking power, and access to resources.

Is there a tradition of capitalism and respect for private property or are nationalizations and seizures of natural resources or foreign companies operating in any sector common?

  • Historically and culturally, merchants/traders were at the bottom of the social ladder. However, since Deng’s reforms in 1980s there has been a strong support for capitalism.

  • All land is owned by the state and purchasers trade only the right to use property on the land for up to 70 years. The disposition of property after that term expires is one of many unsettled issues.

  • China ranks very high in surveys of desirable outlets for foreign investment, but mainly because of the immense potential of its large and rapidly growing market. China’s ranking on international investment and business climate surveys is less favourable. Several areas of concern as revealed in business surveys, including discrimination, difficulty in finding out about and getting clarification on regulations, and protection of intellectual property. China has improved its rank in the World Bank “Ease of Doing Business Survey” rising from 92 in 2007 to 83 in the 2008 survey; but progress has been uneven (Table 1.5). China ranks particularly low in the cost of starting a business, due in part to the still-high minimum capital required; in the difficulty of getting licences and approvals (where it ranks close to the bottom); and in the cost involved in paying taxes. The investment climate varies considerably across the country, from relatively favourable in several eastern cities to less favourable for both domestic and foreign businesses in many interior cities, particularly those in the western region.

How difficult is it for a U.S. company to get money in and out of each country after investing in a country's bank or mining operations? For example, are there repatriation limits of moving earnings? Are there onerous taxes and regulations on earnings?

  • The government became concerned that a significant portion of China’s recent forex accumulations originated from foreign speculative capital inflow and that China’s investment of its forex holdings in low-return securities carried large opportunity costs and posed potential liquidity problems.

  • Forex accumulations from speculative capital inflows were considered low quality because they represented a liability on the Chinese government in favor of foreign speculators, who could withdraw their capital (i.e., “capital flight”) and consequently destabilize China’s economy. At the same time, China was earning low returns by holding forex in relatively safe, long-term assets. Thus, the Chinese government sought to improve the quality of its forex accumulations and to allocate more efficiently its forex holdings by gradually liberalizing capital flow.

  • QFII- Qualifed foreign institutional investor sought to improve the quality of China’s forex holdings by attracting valuable medium- and long-term foreign capital while deterring short-term speculative inflows (“hot money”).

    • 2002 version: The QFII program permits qualified foreign institutional investors to make limited investments in China’s capital markets and restricts capital flight (i.e., short-run capital outflow due to investors’ panic).The QFII program has allowed more foreign investors to invest in China. However, the regulations create an unclear and unpredictable legal environment, which may discourage otherwise valuable foreign investment by increasing the actual and perceived costs of investing in China.

    • QFII 2006 define a QFII as a foreign fund management institution, insurance company, securities company, or other asset management institution, which (1) has approval of the CSRC to invest in securities in China and (2) has a grant of an investment quota from the SAFE.125 The 2006 regulations favor pension funds, insurance funds, mutual funds, charitable funds, and other long-term asset management institutions in order to encourage medium- and long-term investments.

    • System currently allows for less than 200 international financial with 100 or more applicants waiting for approval. At the end of 2010, the total quota approved by SAFE had reached $19.7 billion, and the government has pledged to expand the quota to an eventual total of $30 billion.

    • According to KPMG – QFIIs QFIIs serve as an intermediary subject to control and measurement of capital flows into and out of China. As the capital account liberalizes, QFIIs will continue to be a major conduit for foreign investment, but KMPG expects the quota system will be relaxed in some ways.

    • QFIIs allowed to participate in stock index futures trading.

  • QDII - Qualifed domestic institutional investor 2006 - sought to improve the returns on and diversity of China’s forex holdings by permitting broader channels for capital outflow into offshore markets.

    • QDII program has opened more foreign markets to Chinese investors, but numerous detailed restrictions and the current stormy financial climate reduce the attractiveness of overseas investments. QDII program permits qualified domestic institutional investors to make limited investments in foreign capital markets. This expansion in capital outflow enables private investors to spend some of China’s excess forex reserves on a range of investments in various offshore securities markets, thereby creating more profitable opportunities for and diversification of China’s forex holdings, as suggested by policy experts.

    • Sanctions five types of Chinese entities to invest abroad — banks, trust companies, fund houses, securities firms and insurance companies. As at end 2010, 95 Chinese institutions had been granted QDII status

  • “There is a lack of understanding of the foreign exchange regulations in converting Chinese Yuan into a tradable currency like the USD. So when the US parent wants to repatriate some of their accumulated Chinese Yuan reserves, they think all you need is to declare a dividend and apply for a wire transfer to the US parent. While China allows Foreign Invested Enterprises (FIEs) and enterprises to remit their profits/dividends out of the country, there are a range of requirements companies must first meet, including regulatory and corporate governance compliance in China - the list is long and the key is to formulate a profit repatriation strategy.

  • Procedure of repatriating profits:

  • 1. Documents to be submitted to bank

    • payment statement and tax return (enterprises eligible for tax exemption and reduction should also submit proofs issued by local tax office);

    • Audited report prepared by accounting firm on profits, dividends and bonuses of the current year;

    • Resolution of the board of directors on dividend and bonus distribution;

    • Foreign exchange registration certificate of foreign-invested enterprise; �� Credit report prepared by accounting firm;

    • Other information as requested by State Administration of Foreign Exchange (SAFE);

    • For remittance of profits, dividends and bonuses from previous years,an audited report on the FIE’s financial situation during the year in question should also be submitted to the bank.

  • 2. Bank verifies authenticity of documents

  • 3. Bank completes remittance procedures

    • Bank will mark “profits, dividends and bonuses remitted” on the foreign exchange registration certificate and tax payment statement respectively, and endorse with an official seal. When remittance is done, bank will keep photocopies of these two documents for record.

  • 4. Bank reports to local foreign exchange administration

    • Within the first five working days of each month, bank will submit to local foreign exchange administration department reports (in the form of spreadsheet) on profits, dividends and bonuses remitted by FIEs during the previous month.

  • Businesses w/ permanent establishment (a fixed place of business through which the business of an enterprise is wholly or partly carried on)

    • Potentially applicable to staff on temporary transfer or short-term visitors

    • Individual Income Tax (IIT) for individuals range from 5%-45%

    • Enterprise Income Tax (EIT) on global income connected with the permanent establishment (deemed profit of 15-50% of revenues).

  • Sale of a holding company outside of China holding assets within China (10-20%)

  • Hong Kong an excellent entry point to China due to familiar legal system, low corruption, intellectual property right protect, business transparency, fully convertible currency to RMB for personal and corporate accounts, and simple tax system. China’s tax rate is up to 45% for individuals. Hong Kong is 17% for companies and 15% for individuals.

  • Possible new Fund Law may include allowing fund managers to trade equities and derivatives for personal accounts, something which is currently prohibited in China. Other significant developments include proposed regulation of non-public funds by the CSRC, granting non-public funds access to the public retail fund market. By registering with the CSRC, non-public fund managers may offer public funds subject to approval. This may lead to further market competition with public fund managers due to the expertise and service non-public fund managers can offer, especially in wealth management business, which is one of the fastest growing sectors in financial services.

  • Offshore developments: The deregulation of offshore RMB business since mid-2010 has led to fast-paced development of an offshore RMB market in Hong Kong. The launch of the first RMB fund and RMB-denominated insurance policies granted foreign investors new investment channels to access RMB-denominated assets. It also served as an example of further promotion and internationalization of the Chinese currency in offshore markets.

  • Mini-QFII set to serve as an additional inward capital channel. Mini-QFII will allow qualified Hong Kong subsidiaries of both Chinese securities firms and fund management companies to channel RMB deposits in Hong Kong into the mainland financial markets via investment products.

Is STRATFOR aware of any possible changes to taxation, removing money from the country, or any other types of capital constraints in general?

  • China tax revenues is shared between the central and local governments.

  • The central government returns part of its tax revenue to local governments based on the growth in local government value-added taxes and consumption tax. The central government provides assistance in the form of fiscal transfers to less developed regions and regions inhabited by ethnic minorities.

  • Tax revenues are shared between the central and local governments:

• Domestic VAT: 75% for central government and 25% for local governments.

• Income tax: 60% for central government and 40% for local governments.

• Resource tax: tax paid by offshore oil enterprises goes to the central government, and the rest goes to the local governments.

• Stamp tax revenue collected on stock transactions: 97% goes to the central government, the remaining 3% goes to local governments.

What are the major security threats for foreign business travelers and country-based nationals working in each country, to include threats posed by terrorism, crime, political stability and war and insurgency?

  • Most incidents of social unrest remain localized and have been quickly suppressed.


  • Chinese law is highly ambiguous, contradictory and difficult to understand, even for Chinese. Nothing is consistent — not the law, its enforcement or its application. Some contend this is due to the piecemeal manner in which Chinese law was created, but many believe that the confusion is intentional. If the law is inscrutable, the authorities have the upper hand and it is difficult for citizens to challenge the state legally. It also is worth noting that precedent is not applicable in the Chinese legal system, allowing authorities tremendous freedom in their rulings. Simply put, no law is above the decisions of the Communist Party. Laws are often selectively applied depending on the interests of the authorities at any given time, and it is not uncommon for Western business executives to be compromised by authorities.

  • In the event that a foreigner winds up in trouble with the law, foreigners should not expect to encounter anyone with proficiency in their own language. A translator will arrive as the process moves along — though proficiency is not certain — but it is important for the foreigner not to sign any documents he or she cannot read. Foreigners can seek help from their local embassy or consulate, but the most those offices can do is protect the foreigner’s basic rights (including access to medication, food, water and shelter) and ensure that a lawyer is provided if requested by the foreigner.

  • When a foreigner is arrested, the local Foreign Affairs Office, which is responsible for providing a translator, will be contacted. In cases of conflict between two parties, so long as the case is not serious and no one was “severely” harmed, authorities typically will ask if the dispute can be resolved at the level of the local public security bureau (PSB). This process is known in Chinese as tiaojie. It appears that the foreign Apple employee mentioned above resolved his case in this mediation phase at the local office. Foreigners can be put off by this notion because they believe they are being asked to pay a bribe, and it is difficult for foreigners to distinguish corruption, which certainly exists, from the mediation phase. They must recognize that mediation is a requirement of the legal system and a means of settling disputes separately from the court.

  • If a resolution cannot be reached, the case will be filed with the procuratorate, at which point the process becomes much more bureaucratized, time-consuming and difficult for the foreigner to influence. It also means the case becomes official record, which could mean deportation and/or refusal of a visa for the foreigner in the future. Prior to the trial, the PSB typically will release the person on bail or under residential surveillance, depending on the severity of the crime, because the detention of a foreigner entails strict processes and paperwork and complicates the process for all involved. There are two forms of bail: The first is called bao zheng ren and requires a person to guarantee that you will not flee, and the second is bao zheng jin, which is a more typical form of bail and requires that a sum of money be paid. (Even when released, the foreigner still will be called at various times to come to the local prison to meet with authorities and give statements regarding the case.)

  • Foreigners also may encounter problems with lawyers. As is the case throughout the world, competency is not assured, nor is proficiency in the foreigner’s native language. Additionally, Chinese lawyers ultimately work for the state and thus can be expected to pursue the state’s interests.

  • In essence, visitors to China should understand that if they find themselves in legal trouble for whatever reason, the process will not work the same way that it does in the West. The person’s nationality and the severity of the crime will greatly affect how he or she is treated. These are exceptional circumstances, but foreigners in China should be prepared for the arbitrary and selective application of the law and should not expect a Western-style trial if their case reaches that point.

Is there a presence of revolutionary or secessionist groups? If so, how much of a risk do they pose to the government and foreign businesses and their employees operating in the country?

  • Cycle of centralization and decentralization of power.

  • Population concentraded on coast line.

  • Largest ethnic group is Han Chinese. Number of smaller ethnic groups are scattered on border areas of isloated in the mountains.

  • Tibet, Xinjiang, Mongolia are the biggest threats but any medium uprising is generally violently put down and all media is blocked to and from the outside world.

In regards to the abovementioned questions, are any major shifts in the present conditions expected within the next ten years?

  • 2012 new leadership but Deng-like reforms unlikely.

  • Financial liberalization: developing bond and derivative markets; liberalizing RMB

  • Real Estate bubble – how long will it last?

  • Navy

  • Further reduction in the SOE sector. Although much smaller than a decade ago, China’s SOE sector is still greater in scope than seems warranted on the basis of strict economic criteria.

  • The need to at least reduce the extent of state ownership is particularly compelling in the financial sector, where the contrast between nearly complete state ownership and the prominence of private business in the real sector is striking and growing. Moreover, banking, insurance and the other major financial segments are dominated by very large state-owned institutions with traditionally close links to the central government. In the banking sector, the market share of the state-owned commercial banks has been falling only very gradually.

  • Greater foreign access to service sectors - Although China has opened its services sectors considerably under its WTO commitments, further liberalisation of access for foreign investors and businesses could bring substantial benefits. Foreign investment is greatly needed and in some cases has long been actively sought to help finance the massive investments required in energy, water, and other infrastructure-intensive sectors.

  • Many countries, including China, have sought to protect their service sectors from foreign access because of concerns that foreign companies, with often greater capabilities, will harm domestic counterparts and prevent them from developing their potential competitiveness (the “infant industry” argument).

  • Foreign service providers have faced three types of barriers to entry into the domestic markets: restrictions on their ownership form and ceilings on the maximum share they may own in a domestic firm; restrictions on their geographic scope and lines of business; and other requirements, such as minimum capital requirements, not imposed on domestic competitors or imposed to a lesser degree.

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