Foreign Business Looks Less Favorably on China

Foreign Business Looks Less Favorably on China
A man walks past the Central Business District in Beijing on May 31, 2023. Jade Gao/AFP via Getty Images
Milton Ezrati
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Commentary

Rhetoric—whether from corporate executives or government officials—seldom comports with reality. And seldom is the gap as wide as on the subject of foreign investment in China. Beijing says that it is open for business and welcomes foreign investment when, in reality, it has made doing business in China more difficult than ever.

Corporate executives speak of engaging China and then sending their dollars, yen, euros, pounds, won, and whatever elsewhere. The situation is hard on all involved but promises to go hardest on China.

Words today sound sweet and go down easily. Chinese foreign affairs ministry spokesperson Mao Ning announced at a recent news briefing that China “welcome[s] foreign companies to invest in and do business in China, explore Chinese markets, and share in development opportunities.” She added, “China is firmly committed to advancing high-level opening up and fostering a market-oriented, law-based, and internationalized business environment.”

People visit the Tesla stand at the China International Import Expo (CIIE) in Shanghai on Nov. 5, 2021. (STR/AFP via Getty Images)
People visit the Tesla stand at the China International Import Expo (CIIE) in Shanghai on Nov. 5, 2021. STR/AFP via Getty Images

From the corporate side, JP Morgan CEO Jamie Diamon has called for “real engagement” between the United States and China. Elon Musk, who has a Tesla factory in Shanghai, shared with Chinese Foreign Affairs Minister Qin Gang his abhorrence of the notion of economic decoupling.

The reality, however, belies such upbeat commentary. Most notable in this regard are a recent spate of raids by Chinse security on foreign-based consultants, auditing firms, and law offices operating in China. Due diligence firm Mintz Group reported that just this past March, Chinese security agents arrived unannounced at their offices and detained five staff members. U.S. consultant Bain & Co. reported a similar raid on their Shanghai offices, although employees were questioned but not detained. Chinese state media announced that security authorities were investigating the consultant Capvision Partners.

In none of these events and others has Beijing explained its behavior beyond vague national security concerns. Speculating on the reasons, Michael Hart, president of the American Chamber of Commerce in China (AmCham China), believes it has something to do with the information such firms collect as part of their business. In response to his own thought, he then asked, “How can you plan future investment if you can’t do due diligence on your future partners?”

Alone, the uncertainties created by such behavior work against Beijing’s stated desire to increase foreign investment. But there is more. Beijing’s especially severe lockdowns and quarantines during the COVID-19 pandemic and in its aftermath have raised questions about the economy’s former reputation for reliability and accordingly undermined the economy’s attractiveness as a place for foreign investment. Nor does it help that Chinese wages have risen faster than wages in the developed world or the rest of Asia. Further detracting from China’s allures are the tariffs that former President Donald Trump imposed on Chinese products coming into the United States and that President Joe Biden has kept in place. All have made foreign businesspeople and investors less willing to tolerate other policies imposed by Beijing, such as its insistence that foreign firms operating in China share proprietary technologies with a Chinese partner, not to mention unexplained security raids.

Certainly, attitudes among American and other foreign operations in China reflect such reservations. A recent survey conducted by AmCham China showed that for the first time in the 25 years the organization had conducted its survey, China has fallen from the top spots as an investment destination. Referring to the survey respondents, AmCham China summed matters up this way: “Their willingness to increase investment and strategic priority is declining.” Similar polls conducted by the European Chamber of Commerce in China show the same change in sentiment.

It should then come as no surprise that Japanese, Korean, and Western money has sought destinations other than China. Dozens of firms have reacted to Beijing’s takeover of Hong Kong’s once independent and largely liberal “special administrative region” by decamping elsewhere in Asia, mainly to Singapore. Among them is Federal Express, but most others are connected to the financial industry.

Freight Caviar, a journal that focuses on the shipping industry, has conducted an informal survey that identifies some 70 firms that have left China recently or other Asian venues, notably India, Thailand, Taiwan, and especially Vietnam. Among these are the giants Samsung and Apple. The former has completely shut down its former expansive phone factories in China and, accordingly, has radically reduced its Chinese workforce. Samsung is presently building the world’s largest mobile phone factory in India. Apple is planning a similar, if less complete, move and will relocate some operations to Vietnam while relocating its watch and iPad operations to India.
Things clearly are not going in China’s favor. Since much of the foreign reconsideration and flight reflects the actions of Beijing’s leadership, one is tempted to say that China’s wounds are self-inflicted—no doubt there is truth in that conclusion. The problem, however, is less one of a single or even a group of policy decisions than a result of China’s authoritarian system. And from this perspective, it is hard to believe that Beijing will find a way to turn things around.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Milton Ezrati
Milton Ezrati
Author
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Before joining Vested, he served as chief market strategist and economist for Lord, Abbett & Co. He also writes frequently for City Journal and blogs regularly for Forbes. His latest book is "Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live."
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