Sang Baichuan: China’s struggle with institutional opening up

Despite ambitious goals, fragmented pilots, regulatory inconsistencies, and lack of clarity impede China’s transition to high-standard international economic integration.

The concept of institutional opening up was first introduced at China’s 2018 Central Economic Work Conference, and has since become a recurring theme in top-level discussions, including the most recent 2025 Central Economic Work Conference.

But as Sang Baichuan, Professor of Economics and Dean of the Institute of International Economy, at the University of International Business and Economics, notes, to this date, Chinese authorities have yet to offer a comprehensive, framework-based explanation of what institutional opening up truly means. This lack of clarity is not only causing confusion but also leading to poor implementation.

Sang’s critique is blunt. While the shift towards aligning with high-standard international rules is being heralded as the future of China’s opening up, it is riddled with problems that need urgent attention:

• Free trade zones as exclusive privileges: The authorisation to pilot institutional reforms has turned into a prized resource for local governments. Pilot projects are isolated, often designed to serve local needs rather than being part of a cohesive national strategy. This has led to disparities in foreign investment opportunities and created a fragmented market, rather than advancing the unified national market that the government envisions.

• Slow and inconsistent regulatory alignment with global standards: Despite central government directives, the pace of alignment with international rules—particularly in transparency, competitive neutrality, and market access—has been sluggish. Departmental and local differences in implementation have led to regulatory conflicts that continue to undermine investor confidence and keep China out of sync with global expectations.

• Risk aversion stifling innovation: Local governments and departments have prioritised risk control and security concerns over institutional innovation. This focus on caution has led to stagnation in reforms and a reluctance to embrace the transparency and market-driven changes.

Sang concludes that without a more coordinated and comprehensive approach, China’s institutional opening up efforts will remain fragmented and ineffective. He suggests that China should systematically repeal departmental regulations that conflict with opening up measures and calls for a national-level, unified design to align with high-standard transparency rules.

—Yuxuan Jia

The article was published on Sang’s personal WeChat blog, 桑百川的开放观 Sang Baichuan’s Perspective on Openness, on 10 December. Sang has kindly authorised the translation.

莫让制度型开放走样变形

Don’t Let Institutional Opening Up Go Astray

Proactively aligning with and actively incorporating high-standard international economic and trade rules, and steadily expanding institutional opening up, is not only the fundamental way to break through rule-based barriers, but also a proactive approach to promoting reform and development through openness. It is an inevitable path toward realising Chinese modernisation.

China has made significant progress in institutional opening up; however, existing pilots show signs of fragmentation and dispersion. An institutional framework for an open economy has yet to be established. Furthermore, progress in aligning with key behind-the-border rules, such as decision-making transparency and competitive neutrality, has been limited.

Key behind-the-border rules will play a crucial role in the future institutional competition between China and the U.S. As U.S. tariff hikes face setbacks, the United States is likely to intensify such rule-based barriers. This makes it crucial for China to plan and implement institutional opening up experiments with greater urgency.

1. Progress in Institutional Opening up

In advancing institutional opening up, China has gradually developed an approach that combines top-down design with bottom-up experimentation. Through the phased establishment of pilot free trade zones, the development of the Hainan Free Trade Port, and the expansion of comprehensive pilot programs for the service sector, China has created a series of special platforms for institutional opening up and established plans for their development.

These special opening up platforms have carried out institutional innovation, piloting a series of pioneering and leading institutional innovation measures and generating a number of innovative practices and cases. Drawing on local experiences, China has expanded the scope of replicable and scalable practices, while actively aligning with high-standard international economic and trade rules such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA).

In conducting differentiated and specialised explorations of institutional opening up, these special platforms have engaged both at-the-border and behind-the-border rules. Efforts have included promoting trade and investment liberalisation and facilitation, strengthening intellectual property protection, enhancing environmental protection standards, regulating government subsidies, refining government procurement systems, exploring rules for digital trade, and deepening reforms to streamline administration, delegate powers, improve regulation, and upgrade services. As a result, the business environment has steadily improved.

However, institutional innovation across regions has largely been driven by local needs and specific application scenarios, resulting in pilot reforms concentrated in select sectors rather than fostering systematic, integrated institutional innovation. Fragmentation remains a significant issue, and progress in aligning with key behind-the-border rules, such as decision-making transparency and competitive neutrality, has been limited. As a result, gaps persist between current practices and market expectations, undermining foreign investor confidence.

2. Problems in advancing institutional opening up

The authorisation to pilot institutional opening up has become a contested privilege among local governments.

To ensure that institutional opening up and reform progress in a safe and controllable manner, China has adopted a model of conducting regional and sector-specific stress testing pilots. As a result, obtaining pilot authorisation has become a highly sought-after special resource for local governments.

Obtaining pilot authorisation often necessitates the presence of foreign-invested projects, yet without pilot authorisation, foreign investors are unable to enter the market. This creates a paradox within the opening up pilot process.

In some regions, foreign investors have shown interest in investing in local government-designated leading industries, and relevant application scenarios exist. However, investment projects cannot be implemented due to the lack of pilot authorisation. Regions without pilot authorisation envy those that possess it, while those with pilot authorisation envy those with a greater number of pilot privileges.

In order to obtain pilot approval, lobbying central ministries in Beijing has become a major task for local governments, entailing substantial costs. Different special economic zones implement different opening up policies and institutional arrangements and assume distinct pilot functions, resulting in significant disparities in the treatment of foreign investors across regions. The lack of consistency in nationwide opening up policies has hindered the formation of a unified national market.

A gap persists between the opening up of key sectors and institutional opening up.

In expanding opening up in the service sector, issues such as “green light at the central level but red light at the departmental level” and “entry is allowed but operation is restricted” persist, hindering the creation of a high-standard open economic system. While the Ministry of Commerce and the National Development and Reform Commission lead the implementation of opening up policies and institutions, different government departments have varying levels of understanding of institutional opening up and have failed to coordinate their efforts. For many departments, risk control and security take priority, with opening up relegated to a secondary concern or treated merely as a slogan.

In key areas of opening up, such as culture, education, and healthcare, departmental regulations that restrict foreign investment and business operations remain in place, creating mismatches with the central-level opening up decisions. As a result, these policies are not effectively implemented, and efforts to expand institutional opening up have been less substantial than the policy rhetoric suggests.

Progress in aligning with certain key behind-the-border rules has been slow.

The principle of transparency, a cornerstone of international economic and trade governance, is increasingly moving toward higher global standards. Their scope has expanded beyond foreign economic and trade policy to include areas such as labour, the environment, development, small and medium-sized enterprises, government procurement, and e-commerce. Disclosure requirements have also broadened to encompass the objectives of proposed regulations, their core principles, and the rationale behind significant revisions.

Public comment periods have been extended, and mechanisms for public participation have been established, allowing the public to contribute to the review of administrative rulings involving substantive rules. Reporting of violations is also encouraged. Additionally, dispute settlement mechanisms have been established.

In contrast, China’s efforts to improve decision-making transparency have largely been limited to compliance with WTO requirements and the disclosure of major administrative matters at the local level. If transparency standards are not substantially enhanced, China’s accession to high-standard regional trade agreements, such as the CPTPP, will be affected, thereby restricting international economic and trade cooperation.

Competitive neutrality has become a core rule for addressing market-distorting behaviour and is widely recognised internationally. High-standard economic and trade rules led by the West continue to treat competitive neutrality as a baseline requirement. These rules often characterise Chinese state-owned investment projects as sources of market distortion, leading to the development of institutional exclusion mechanisms specifically targeting China.

For example, in June 2025, after China Railway Construction Corporation (CRCC) won the bid for a Polish high-speed rail project, the contract was unilaterally annulled following the European Commission’s allegations of “market distortion” by the Chinese state-owned enterprise. [We have been unable to find verifiable reporting of this case through government or media sources. —Yuxuan’s note]

If China does not accept competitive neutrality rules, the international space for the survival and development of its state-owned enterprises will be significantly reduced. While China has made efforts to promote fair competition, it has yet to formally establish a competitive neutrality regime.

3. Root Causes of the Problems

The difficulties and challenges China currently faces in expanding institutional opening up are, in essence, rooted in the fact that the existing institutional architecture, regulatory approaches, and governance capacity have yet to fully meet the requirements of a high-standard opening up strategy.

Insufficient systemic policy design

The 2018 Central Economic Work Conference first proposed “promoting the transition from opening up based on the flow of goods and factors of production to institutional opening up based on rules and other arrangements.” However, relevant authorities have yet to provide a comprehensive, framework-based explanation of institutional opening up. In reality, since the launch of reform and opening up, China has consistently pursued elements of institutional opening up, rather than relying solely on the flow of goods and factors of production. China has always used institutional reforms, rule-making, and policy measures to create enabling conditions for the cross-border flow of goods and factors.

The current emphasis on shifting toward proactive opening up essentially focuses on aligning with high-standard international economic and trade rules. However, in practice, efforts by ministries and local governments to align with high-standard agreements such as the CPTPP and DEPA have been limited to a few sectors and specific issues. There is still a lack of systematic and comprehensive planning to coordinate opening up across trade, investment, financial services, data flows, and socio-economic governance.

Absence of effective cross-departmental coordination mechanisms

Differences in policy objectives and a lack of coordination between foreign investment authorities and sectoral regulators have undermined the efficiency of policy implementation and, in some cases, led to conflicts in the execution of opening up policies. The absence of effective legislative coordination mechanisms has created a disconnect between opening up policies and revisions to sectoral regulations; amendments to subordinate legislation often lag significantly behind.

For instance, conflicts exist between the prohibited items listed in the Regulations on the Administration of Online Publishing Services and the Negative List for Foreign Investment Access. Additionally, the failure to revise the Regulations of the People’s Republic of China on Chinese-Foreign Cooperation in Running Schools has effectively prevented the establishment of foreign-invested educational institutions. A regulatory mindset that prioritises risk prevention and security safeguards has constrained institutional innovation and breakthroughs.

Lack of capacity in local pilot programs to address systemic rule alignment

The high-standard principle of transparency essentially aims to place government power under public scrutiny, protect the public’s right to know, and subject administrative authority to public oversight. As such, these principles directly constrain administrative power and impact the interests of government departments. This has reduced the incentives for both central agencies and local governments to engage in meaningful exploration and innovation. Consequently, efforts often focus merely on meeting basic information disclosure requirements from the central government or selectively expanding the scope of disclosure, rather than pursuing comprehensive alignment with high-standard transparency.

The institutional arrangements of competitive neutrality involving enterprises, particularly state-owned ones, define the relationship between the government and state-owned enterprises. Due to its broad and systemic nature, competitive neutrality cannot be piloted by free trade pilot zones (ports) or local governments alone. Instead, it requires unified design and coordination at the national level.

4. Removing bottlenecks to institutional opening up

Currently, international economic and trade rules are undergoing a new round of restructuring. China should proactively seize this strategic opportunity and work to remove bottlenecks to opening up. With the modernisation of the national governance system as the core objective, institutional opening up should be systematically planned to provide institutional support for advancing higher-standard opening up and stabilising foreign trade and foreign investment.

Accelerating the spread of innovative practices in institutional opening up

Comprehensive risk assessments should be conducted on the replicable and scalable practices developed by various free trade pilot zones. Practices assessed as low-risk and manageable should be promoted nationwide at an earlier stage to prevent pilot areas from becoming entrenched privileges for a small number of regions.

For high-standard international economic and trade rules and 21st-century international trade frameworks, it is essential to move away from the old approach where individual free trade pilot zones independently tackle institutional innovation tasks or choose reform measures. Instead, greater emphasis should be placed on integrated, system-wide institutional innovation. Once achieved, the outcomes of these integrated innovations should be promptly rolled out nationwide and implemented on a unified basis.

Strengthening the overall coordination of institutional opening up

Departmental regulations that conflict with measures to expand opening-up should be systematically repealed. Detailed implementation rules for major opening up initiatives should be established, and objectives and tasks for the continued expansion of institutional opening up should be clearly articulated. In response to existing problems, sector-specific lists of reform issues requiring breakthroughs should be formulated, with responsibilities and authorities clearly defined. Reform tasks and progress should be made transparent in order to remove systemic bottlenecks that hinder institutional opening up.

Comprehensively planning alignment with major institutions.

Alignment with high-standard transparency rules should be designed and coordinated at the national level. This process should include clearly defining the applicable scope and sectors, specifying the types of information to be disclosed in government decision-making, publishing the objectives, underlying principles, and substantive justifications for proposed regulations, setting public comment periods, institutionalising public participation, and establishing dispute settlement bodies. Pilot implementation can then be carried out on special opening up platforms such as Shanghai and Hainan.

Under the leadership of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and the Ministry of Commerce, a China-specific competitive neutrality framework should be developed in a unified way, drawing on the China–EU Comprehensive Agreement on Investment. This framework should provide detailed provisions on the definition of covered entities, the scope of application, non-discriminatory treatment, commercial considerations, transparency obligations, regulatory authorities, and dispute settlement mechanisms. It should also ensure the lawful status of state-owned enterprises as market entities in market competition and be implemented nationwide as a universal framework.

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