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I was involved in numerous World Bank and IMF missions to developing countries over the years, including China, and one of my first orders of business was to read the reports put out by accounting and legal firms evaluating the ease of doing business in a particular place. Looking at the latest “doing business” reports from China, it’s clear that the country has done some things to reduce barriers to foreign direct investment, but investment regulations are still extraordinarily heavy.

Restrictions

Companies that want to set up shop in China need to create a special Chinese subsidiary whose licence to stay must be routinely renewed by the government. Foreign companies can also enter joint venture agreements with Chinese companies, but even those require approvals and are subject to a number of restrictions.

Certain industries are off limits, including power, oil, banking, tobacco and broadcasting. Certain capital transactions are still subject to official approval (although foreign exchange is more convertible than it used to be). And the biggest barrier to entry for foreign investment, of course, is that so much of the economy is dominated by China’s powerful and myriad SOEs. Those favoured firms are not ones that most investors see much hope in competing with.

Canada — despite having some barriers to foreign direct investment of our own — is nevertheless a much more open, competitive market. Most foreign acquisitions either are exempt from review, if they’re not too big, or are generally approved by Investment Canada through a net benefit test. The only really controversial ones involve Canadian “champions,” such as in the resource sector, or firms involved in national security.