China pacifies Foreign Investors amid harsh policies

Amidst growing concerns over a series of discouraging economic indicators, Chinese leadership has embarked on a concerted effort to reassure foreign investors, imploring them to either remain in or return to the nation. However, Western officials have been quick to point out that it is Beijing’s own policies that have contributed to the exodus of foreign capital.

August witnessed a flurry of Chinese trade officials engaging with state media to emphasise the government’s commitment to “improve the foreign investment environment” and “spare no effort in keeping foreign capital onshore.” These proclamations followed a significant meeting of the 24-member Communist Party Politburo on July 24, chaired by General Secretary Xi Jinping. During this gathering, the broader slowdown in the Chinese economy was under scrutiny.

The state-controlled People’s Daily reported on this meeting, noting that the discussions encompassed strategies to bolster domestic consumption, stimulate employment, and ensure the stability of foreign trade and foreign investment. These topics have assumed paramount importance in the agenda of the Chinese Communist Party (CCP).

Minister of Commerce Wang Wentao emphasised the significance of foreign investment during a report published in August 2021, citing that companies with foreign investment have generated “40 million jobs in China, equal to 10% of the workforce,” and have contributed a substantial one-sixth of the government’s total tax income.

However, recent reports paint a less rosy picture. Nikkei Asia disclosed last month that foreign direct investment (FDI) in China had plummeted to its lowest level on record in the second quarter of the year. Bloomberg also reported that one measure of FDI reached a 25-year nadir in the April-June quarter.

A conspicuous campaign aimed at safeguarding foreign trade and investment essentials gained momentum on August 13, with the issuance of “commentaries” by the State Council. These commentaries outlined measures to “further improve the foreign investment environment and attract additional foreign investment,” leaving no room for ambiguity as they declared, “No effort shall be spared.”

Nine days later, Beijing announced that the U.S. had removed 27 Chinese entities from a U.S. export control list, coinciding with Secretary of Commerce Gina Raimondo’s visit to Beijing from August 27-30. During her visit, Raimondo adopted a conciliatory tone with her Chinese counterparts, encouraging U.S. businesses in Shanghai to “continue to do what you’re doing.” However, her statements to the media told a different story.

“Increasingly, I hear from businesses, ‘China is un-investible because it’s become too risky,'” Raimondo remarked, drawing attention to the growing apprehensions among American companies.

Furthermore, foreign businesses are grappling with challenges obtaining insurance policies covering political risks for their ventures in China. The reluctance of insurance firms stems from concerns ranging from political interference in company operations to geopolitical tensions, such as those related to Taiwan.

In conclusion, as China endeavours to woo back foreign investors, it faces the sobering reality that its own policies have contributed to investor uncertainty and apprehension. The delicate balancing act between economic growth and regulatory stability will undoubtedly continue to shape China’s relationship with foreign investors in the foreseeable future.