Desperate for capital and with their economies struggling, China’s cities are wooing Western businesses with previously unavailable goodies. Beijing has labeled 2023 the “Year of Investing in China” and local officials have embarked on promotional tours overseas to drum up interest from investors. That effort is running headlong into President Xi Jinping’s national-security agenda, with its focus on fending off perceived foreign threats. That has made any Chinese investment a potential minefield for foreign firms.
A Xi-led campaign this year has hit Western management consultants, auditors and other firms with a wave of raids, investigations and detentions. Meanwhile, an expanded anti-espionage law has added to foreign executives’ worry that conducting routine business activities in China, such as market research, could be construed as spying. The perception that doing business in China has become much riskier is choking the flow of capital into an economy already struggling with weak private investment and consumption, as well as soaring youth unemployment.
Foreign direct investment in China fell to $20 billion in the first quarter of this year, compared with $100 billion in last year’s first quarter, according to an analysis of government figures by analyst Mark Witzke at research firm Rhodium Group. Goldman Sachs economists predict outflows from China this year will cancel out investment going into the country, a stunning change for a country that over the past four decades has consistently seen more money coming in than going out.
China’s growth, which in recent decades has been fueled by the country’s opening to the West, depends on foreign investment and expertise to boost innovation and productivity.
For Chinese leaders, keeping pressure on foreign firms while simultaneously trying to get them to invest is becoming an evermore precarious balancing act, which threatens to deprive the country of the capital, technologies, ideas and management skills that have helped power China’s rise.
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