Chinese leader Xi Jinping has, of late, tried hard to charm foreign business leaders.
In November 2023, while visiting San Francisco for the Asia-Pacific Economic Cooperation (APEC) summit, he carved out time to speak over dinner to American executives. There, he welcomed them to do business in China and promised that his country would remain a safe, reliable, and profitable place to invest.
More recently, he hosted a gathering of foreign executives in Beijing again to encourage them to invest in China.
Xi has good reason to court foreign investment and the business that follows it. China’s economy has slowed, and Chinese consumers, as well as private Chinese businesses, have lost confidence in the country’s economic future. The former is saving more and spending less, avoiding risk, and, because of declining real estate values and stock prices, investing less than previously. Private Chinese businesses have actually cut the amounts committed to expansion.
Government spending on infrastructure—typically the way China has spurred the economy—is more difficult than it once was. The central government in Beijing is running larger budget deficits than it would like, and local governments face huge debt overhangs.
Xi and China need the stimulus of dollars, yen, and euros from abroad just to meet the reduced real growth targets for this year. However, for this urgent need, the foreigners have remained coy or simply said no.
To be sure, American executives have exhibited enthusiasm in response to Xi’s entreaties. They applauded him vigorously in San Francisco and even gave him a standing ovation. This year’s invitation to Beijing got a bigger response than last year’s. In 2023, only 23 executives from America’s leading companies attended. This year, the number had grown to 34, and more of them were senior people from such well-known companies as Apple, Blackstone, AMD, Qualcomm, McKinsey, Micron Technology, Exxon Mobil, Cargill, Bristol-Meyers Squibb, Pfizer, and Hewlett-Packard.
But for all the smiles, applause, and positive RSVPs, the money has not followed—and it is not likely to do so.
Beijing’s Ministry of Commerce reported that in the first two months of this year, foreign direct investment in China continued its months-long decline. In January and February, China attracted the equivalent of some 215 billion yuan ($30 billion) of such money, down by about 20 percent from a year ago and a downward acceleration from the overall 8 percent decline in 2023.
If action speaks louder than words, the ebbing flow of foreign money is drowning out the applause that Xi heard in San Francisco.
Most telling for the future are the reasons why the money is staying away. Part of the problem is China’s slowed pace of growth, the legacy of the COVID-19 pandemic, and the lockdowns that persisted for years after the health emergency under Xi’s zero-COVID policy. The resulting delivery failures undermined China’s reputation for reliability, which had drawn investment money from the United States, Europe, and Japan for years. Nothing Beijing can do now will alter this history, although memories will fade in time.
Nor can Beijing change the relative wage situation. In the past, low wage rates in China were a lure for foreign investment. But in the past 10 years, Chinese wages have risen by more than 100 percent, about 7.5 percent yearly. In the past five years, the pace has slowed but only marginally. Wage growth over this more recent period has averaged almost 5.5 percent per year.
Most important for investment flows, this rate of gain is faster than domestic wage growth in the United States, Europe, or Japan and faster than China’s competition for foreign investment funds in Vietnam, Indonesia, the Philippines, and Mexico. China is hardly likely to reverse this situation, especially with domestic Chinese public dissatisfaction already high.
Beijing could reverse one major impediment to investment flows, but it is hardly likely to do so. American, European, and Japanese executives have all complained of the greater intrusions from Beijing’s growing obsession with security and espionage.
Executives have expressed concerns over their ability to conduct business in such an environment, especially when it comes to things such as data collection and communications with overseas headquarters. They note raids under Beijing’s latest espionage laws on two U.S. consultants, Bain & Co. and the Mintz Group. In the case of Mintz, several employees were detained, and the firm was fined.
Although such disruptions are far from widespread—at least at this stage—they give pause to any decision to invest in China, as do new laws recently imposed in Hong Kong. If Beijing were to reverse policy on this front, it could make a big difference, but government statements have made clear that such a change is hardly likely.
Xi is clearly aware of China’s economic need for foreign investment and the existing impediments. He has turned on the charm, which, if the standing ovation he received in San Francisco is any indication, he has in abundance. However, as the actions of foreign investors show, they ultimately want substance more than charm.
