Beijing seems unable to get out of its own way. It has declared accurately that it needs foreign investment to provide China’s economy with the capital it needs for growth and to bring in badly needed business and technological expertise. Accordingly, the decision-makers have encouraged businesses elsewhere in the world to build operations in China and otherwise invest there. But then, the Chinese Communist Party (CCP) does things that discourage those investment flows.
Among those discouraging actions are its police raids on foreign-owned and operated facilities in China, often on dubious grounds or based on a thinly veiled political agenda. No doubt, human rights advocates will have something to say about such practices. For this economics-based column, however, the focus is on how economically counterproductive such actions are.
The latest such incident occurred at a Foxconn facility in Zhengzhou. This Taiwanese-owned operation makes products on contract to U.S.-based Apple. The facility is crucial to Apple’s iPhone supply chain, so much so that the plant has the nickname “iPhone City.” Last month, Beijing sent police into the facility to arrest four employees on vague allegations.
It seems that neither the police intrusion nor the removal of the four employees has disrupted production. Still, the threat of increasingly severe incidents has to have an effect on business decisions among foreigners who are thinking about investing in China.
Taiwanese authorities are taking the matter seriously. The island’s Mainland Affairs Council has described the arrests and the allegations as “quite strange.” Taipei has accordingly reinforced its June warning to Taiwanese citizens to avoid all nonessential travel to mainland China. For obvious reasons, Taiwan is especially sensitive to such actions.
Last year, Foxconn operations in China faced a strange investigation by CCP authorities that had an equally vague basis and coincided with the short-lived effort by Foxconn founder Terry Gou to run for Taiwanese president. Ominously, Beijing has also spoken of targeting Taiwanese citizens who it identifies as “Taiwan independence die-hards.” Such transgressions, Beijing says, can carry the death penalty.
Against such a backdrop, it is hardly surprising that Taiwanese companies have begun to loosen their once-close ties with mainland businesses. Investment flows from the island’s businesses into China have declined since 2010. Last year alone, these flows fell by almost 40 percent from their levels in 2022. At the equivalent of $4.17 billion last year, they were less than one-third of the 2018 level.
If Taiwan is especially sensitive, such high-handed behavior by Beijing has also affected decision-making elsewhere in the world. After all, Apple was equally vulnerable to the arrests at Foxconn’s Zhengzhou plant.
Nor is it just the Americans and the Taiwanese. In October 2023, CCP authorities arrested an executive of the Japanese pharmaceutical company Astellas Pharma on charges of espionage, although they released him in March. The Chinese authorities also detained an executive and two former employees of WPP plc, one of the world’s biggest advertising companies. Beijing separately held an Australian journalist for three years.
Some of the arrests may have had impeccable legal or national security reasons behind them. If so, Beijing has made little effort to make that clear. In the meantime, the prevailing sense of harassment deprives the economy of desperately needed foreign investment inflows.
This expanding reluctance among foreign investors is most evident in trade figures. American smartphone imports from China, for example, fell some 10 percent in 2023, the most recent period for which complete data exist, while imports of laptops have fallen by 30 percent. In contrast, imports of the former from India and the latter from Vietnam have each quadrupled, albeit from a low base. European figures are less complete, but Berlin reports German imports from China are down by some 13 percent over the past year.
Preliminary reports show that despite the long period spent developing trade relations between China and Germany, the United States may have surpassed China as an exporter to Germany. Data on Japan and South Korea are limited, but the recorded drop in exports from these two countries to China might well reflect a reluctance to use China-based assembly facilities, a major destination of Japanese and South Korean exports to China.
The question arising from all these events is why Beijing is working so hard against its own urgent economic interests. Surely, Chinese authorities cannot be ignorant of the effect of these raids and accusations. Perhaps then, the basic question is this: Can the CCP help itself?
