More reform and opening-up, will stabilize expectations

For multinational companies, the cost of relocating their industrial chains is extremely high as apart from tariff factors there are logistics costs, infrastructure, supply chains and supporting industries that all have to be taken into consideration. Which makes a lock-stock-and-barrel withdrawal a difficult decision and a rare sight. It rings even truer for multinational companies in China as their production, industrial chains and manufacturing are all completed in China. It is unrealistic to stage a massive withdrawal in a short period of time. Thus the charge that foreign capital has largely pulled out from China is exaggerated, to say the least.

However, if the China-US trade conflict is prolonged it would certainly exert substantial influences on foreign capital's expectations and decisions, which would chiefly be reflected in the decrease of newly added investment and increase of profits sent home.

The best option for China to respond to the trade dispute is through proactive opening-up of its market and constant improvement of its business climate. China has promised to deepen reform and opening-up with concrete policies and actions, which have already seen satisfactory results. For instance, as a result of China's decision to loosen restrictions on foreign ownership BMW has decided to expand its investment in China by $3.5 billion and set up the biggest research and development center outside Germany in Shenyang, Liaoning Province.

In fact, foreign companies are willing to continue investing in China as long as the cost is comparatively low and their profits can well cover their costs here. Because as the world's second-largest market, Chinese market is quite attractive in investors' eyes. Moreover, a complete logistics system and advanced labor add to its charms.

Specifically China can further open up the automobile industry, services and financial sector and reduce various sorts of barriers for foreign investment. Meanwhile China can expand international cooperation in high-tech industries with countries and regions including Japan, the Republic of Korea and European Union. China should also lower taxes and expedite the tax system reform, as this would help stabilize foreign investor's expectations as well as reassure domestic investors.

Zhang Monan, a researcher at the China Center for International Economic Exchanges.