As China’s economy continues to decline, Chinese authorities have adopted a heavy-handed approach to “regulating” foreign companies in recent weeks. The tactics have chilled foreign investment in China and triggered a massive capital outflow.
Meanwhile, China’s premier effusively welcomed global executives at the China Development Forum in late March. The contradictory moves—simultaneously welcoming and distrustful—highlighted the ambivalence of the Chinese Communist Party (CCP) and its “struggle philosophy,” say experts.
Independent journalist Zhuge Mingyang believes that the regulatory raids on foreign firms are “a silly retaliatory move” by the CCP in the face of technology and economic sanctions imposed on China by the United States and other Western countries.
According to investment analytics firm Exante Data, from April 21 to 26, global investors withdrew a net $3.17 billion from Chinese stocks through the cross-boundary investment channel Shanghai-Hong Kong/Shenzhen-Hong Kong Stock Connect.
Raids, Detentions, Seizures
In early March, Chinese authorities detained an employee of Japanese company pharmaceutical company Astellas Pharma.On March 26, the Mintz Group, a U.S. corporate research firm, stated that Chinese authorities had raided the company’s Beijing office and detained all five of its employees in China.
On March 31, authorities announced a cybersecurity audit of Micron Technology, a U.S. computer memory manufacturer.
In April, in a surprise raid, Chinese regulators visited the Shanghai office of U.S. consulting firm Bain & Company, seized phones and computers, and questioned employees. The Financial Times first reported the raid on April 26.
Most recently, Chinese officers raided multiple locations of business consulting firm Capvision, Chinese state media reported on May 8. In a report on Tuesday, the South China Morning Report said “the firm was accused of helping to leak information about the Chinese military technology industry to foreigners.”
In line with the raids, on April 26, the regime published China’s revised anti-espionage law, expanding the definition of spying and increasing the enforcement powers of national security agencies. The amendments, the first modifications since the law’s release in November of 2014, allow government agencies to inspect corporate facilities and electronic devices, as well as individuals’ smartphones and laptops.
Alienating Foreign Companies
Anders Corr, founder of Corr Analytics Inc. and publisher of the Journal of Political Risk, told The Epoch Times on May 1 that the aggressive moves by the CCP will discourage foreign companies from doing business in China.“Foreign companies will not want their data open for easy inspection by the Chinese government, which could copy the data through cyber-espionage techniques and provide it to Chinese competitors. This will decrease the willingness of foreign companies to set up major business operations in China, or to travel to China with business-confidential data,” he said.
There is another issue that is frustrating foreign companies. In recent months, the CCP has restricted or even outright cut off overseas access to a variety of databases. The “black box” restrictions limit access to company registration information, patents, procurement documents, academic journals, and official statistical yearbooks.
For example, many customers have found that they can no longer access the Shanghai-based Wind Information Technology Co., according to a Wall Street Journal report. Wind Information is one of the most important databases in China, and its economic and financial data is widely used by analysts and investors in China and abroad.
“Investors are getting nervous about China’s crackdown on accounting and due diligence firms, and their severing of data pipes that used to feed international investors with real-time and quantifiable information about markets that served as inputs for their models and trading algorithms. Without these, it is hard for investors to understand the true value of investable assets,” Corr said.
Lucia Dunn, professor of economics at Ohio State University, told The Epoch Times on May 6 that the CCP’s recent actions indicate a rapid deterioration in China’s economic relations with developed countries.
Manifesting the ‘Philosophy of Struggle’
The CCP’s actions appear contradictory: newly minted Chinese premier Li Qiang recently expressed a warm welcome to foreign companies, even as news of the raids was beginning to circulate.At the end of March, Li told foreign executives, including Apple CEO Tim Cook, that “China’s doors will open wider and wider,” and urged them to “invest in China and establish roots in China.”
However, according to a February Nikkei Asia report, investment by foreign companies in China fell to its lowest level in 18 years in the second half of 2022, as foreign direct investment in China declined 73 percent on the year, the sharpest drop since 1999.
Foxconn Reduces Its Reliance on China
In just one example, tech giant Foxconn has recently made headlines as it moves to reduce its reliance on China.One of Apple’s biggest suppliers, it was reported in February that Foxconn had received approval to invest $270 million in a factory in Vietnam.
In 2022, Foxconn began production of the iPhone 13 in India.
Further, on Monday, Foxconn acquired a 13 million square foot property in the country’s Devanahalli area, paying $37 million for the site, as it seeks to expand its manufacturing presence in India.
About 70 percent of Foxconn’s revenue currently comes from China, according to a Wall Street Journal report on March 15.
Foreign investment has played a key role in China’s rapid economic development. Foreign enterprises have also largely supported China’s first-tier cities. China’s most developed and affluent cities—Beijing, Shanghai, Guangzhou, and Shenzhen—are the most desirable locations for foreign investment.
For example, according to Chinese state media Global Times, at the beginning of February, Shanghai was home to the regional headquarters of 891 multinational corporations and 531 foreign R&D centers. The city attracted a record $23.9 billion in foreign investment in 2022, according to the report.
‘Dare to Fight:’ A New Foreign Policy
Zhuge believes that the CCP’s crackdown on foreign companies illustrates the extreme ambivalence of the CCP, whose approach could be described as “deceit, malice, and struggle.”Dunn also shared her views on Xi’s “dare to fight” ideology.
“It is hard for an outsider to fully understand the ‘dare to fight’ mentality. Perhaps President Xi thinks that he has made the West dependent on China economically, to the extent that he can now ‘pull [the] plug’ that will undermine Western economies,” she said.
“However, I believe this kind of strategy would be vastly underestimating the economic resilience of Western countries. I feel that after a period of adjustment [during which] these countries wean themselves from Chinese cheap labor and the elusive promise of access to a 1.4 billion person consumer market, we will see Western countries actually doing better with a lessened involvement with China.”