An opportunity for China to improve relations with foreign investors

Signs that China’s economy, the world’s second-largest, may be flirting with recession in the second quarter of this year are worrying for global growth. But they offer an opportunity in Beijing. It could use these sobering indications to reconsider not only aspects of its “zero-Covid” policy but also its treatment of foreign direct investors; what is good for them is good for China’s own economy.

Foreign investors have poured hundreds of billions of US dollars into China’s economy since the mid-1980s, helping to foster a transformational economic boom that lifted 850 million people out of poverty. Foreign companies have also transferred technologies to their Chinese counterparts, trained personnel in crucial roles and helped open overseas markets to Chinese-made products.

Some have taken off dramatically in the world’s largest potential market. But many multinational corporations have made handsome profits – and have become the most powerful pro-China political lobbyists in their home countries. Today, surveys show growing disillusionment among foreign investors, many of whom are considering shifting their investments out of China.

Such sentiments do not stem solely from China’s heavy-handed zero-Covid policies, though canceled flights, visa complications and lengthy quarantines have contributed to foreign leaders’ frustrations. The deeper roots of disaffection lie in the sense that doing business in China has become more difficult as Beijing’s rivalry with the West intensifies.

As the United States screens selected investments through the Committee on Foreign Investment in the United States (Cfius), potential investors in China must navigate a maze. They must check that the business they want to start is not on either of the two negative lists, then apply for regulatory approval if it falls into one of the other 550 different categories.

Once a foreign company is up and running, it may come under pressure to transfer technology to its Chinese counterparts, sometimes as part of the “Made in China 2025” strategy, which envisions increasing market share from competitors. national over time. Under the Foreign Investment Act 2020, a national security review may be required for a project that “affects or may affect national security”. Other recent laws have added to the complexity. The Data Security Act and the Personal Information Protection Act, both passed last year, severely restrict the processing of customer data and its transfer overseas.

Add to that the current decline in growth amid tough Covid policies, and it’s no surprise that some high-profile overseas investors look gloomy. Michael Hart, president of the American Chamber of Commerce in China, warned of a potential “massive decline” in investment “in two, three, four years.” Joerg Wuttke, president of the EU Chamber of Commerce in Beijing, said the unpredictability was prompting the European business community to suspend investment in China.

Naturally, the well-being of foreign investors may not be the priority of Beijing’s rulers. In April, retail sales fell 11.1% year-on-year, industrial production fell 3.2%, unemployment rose, exports slowed considerably and bank credit also fell.

Shanghai’s limited reopening after two months of lockdown is a welcome signal that China may be relaxing its zero-Covid mantra, and there are signs that activity may pick up in response. But Beijing should also take steps to demonstrate that foreign investors remain a valuable part of the economy. Official statements to that end would set a positive tone. But a real focus on cutting red tape and ensuring equal treatment with local competitors would alleviate some of the gloom gripping the foreign business community in China.

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