Global Courant
HONG KONG — After three years of trying to do business under some of the world’s strictest Covid controls, US and other Western companies in China entered 2023 with cautious optimism: the country finally reopened and Chinese officials, eager to revive the economy to revive, were actively looking for foreign investors.
But one series of raids this spring at international consultancies and other actions by Chinese authorities have undermined that message, cementing Beijing’s reputation as an increasingly unpredictable regime that poses increasing risks to foreign trade and investment, US business groups and executives say.
The recent moves, coupled with ongoing diplomatic tensions with Washington, have further complicated the business climate between the world’s two largest economies, even as they remain closely intertwined.
“What you see is a leadership that – despite the rhetoric of ‘we’re open, we’re back, we want foreign investment’ – just piles uncertainty upon uncertainty. And the results of that are, I think, quite predictable,” said one senior business executive who speaks regularly with U.S. officials and business leaders operating in China.
“If you create a more insecure, less welcoming environment, companies are going to vote with their feet,” said the executive, speaking on condition of anonymity amid concerns his comments could jeopardize his organization’s prospects in the country.
China continues to be a major focus for US companies, as evidenced by the recent stream of senior executives visiting for the first time since pre-pandemic, including Apple’s CEO Tim is cookingCEO of JPMorgan Jamie Dimon and Tesla CEO Elon Musk. And most U.S. companies operating there plan to stay, with three-quarters of those responding in April flash research by the US Chamber of Commerce in China (AmCham China) saying they would not move their supply chains.
But China is no longer seen as a top three investment market by a majority of U.S. companies, according to one Entrepreneurial Climate Research the room released in March. It was the first time in the poll’s 25-year history that member companies had such a pessimistic view of the Chinese market.
The research found that while US companies still see China as a priority, “their willingness to invest more and their strategic priority is declining,” the business group said.
By far the biggest concern for US companies in China is the deteriorating relationship between the two countries, with 87% of respondents expressing a negative outlook in the flash survey.
Dozens of U.S. companies have moved their regional headquarters out of China’s “special administrative region” of Hong Kong over the past decade, according to a report from the Atlantic Council in March. The trend accelerated sharply in 2021 and 2022 following China’s crackdown on massive pro-democracy demonstrations there, including sweeping legislation that curtailed civil liberties.
FedEx said it did in May relocating some of its Asia-Pacific operations from Hong Kong to Singaporewhich one has tried to take advantage of the changing business climate. A spokesman said the carrier’s move would help “connect all of our operations in this region with greater speed and agility.”
A FedEx exhibition booth in Shanghai last year. The parcel carrier is one of the Western companies moving some of their regional operations out of Hong Kong.VCG via Getty Images
At a JPMorgan summit of US and Chinese business leaders in Shanghai last week, Dimon called for “real involvement” between the US and China over security and trade issues, Reuters reported. He also expressed support for the Biden administration’s policy of “de-risking” the US-China relationship rather than a more serious “decoupling.”
Musk, who has a large Tesla factory in Shanghai, also spoke out against decoupling a meeting in Beijing last week with Chinese Foreign Minister Qin Gang, according to a reading from the Foreign Ministry.
While Musk has not publicly commented on his trip, China’s state media suppressed his visit as a sign of Beijing’s openness to foreign investment.
“China is committed to fostering high-level openness and fostering a market-oriented, law-based and internationalized business environment,” Chinese Foreign Ministry spokesman Mao Ning said at a regular news briefing in Beijing last week. “We welcome foreign companies to invest and do business in China, explore the Chinese market and share in development opportunities.”
But foreign businesses this year have been shaken by a series of raids and increased scrutiny of international consulting firms, financial audit firms and law firms conducting due diligence on investments and new ventures in China. Chinese authorities cited national security concerns for some of the moves.
A spokesman for US due diligence firm Mintz Group confirmed that in March Chinese authorities detained five staff members of the Beijing office, all Chinese nationals, and closed their operations there. The company has not received any official legal notice regarding any case against the company and has requested the release of its employees, the spokesperson added.
A spokesperson for US consulting firm Bain & Co. confirmed that Chinese authorities questioned staff at the Shanghai office in April and said it was cooperating if necessary.
Chinese state media reported in May that national security authorities had launched an investigation into Capvision Partners, a consulting firm that connects clients with mostly Chinese experts in various fields and has headquarters in Shanghai and New York. The company, which did not respond to a request for comment, said in an earlier statement on its WeChat account that it would adhere to China’s national security rules.
Business groups have expressed concern about the types of companies China is targeting, saying their services are crucial to building investor confidence in any market.
“If you can’t collect information, how can you run and manage your business?” said Michael Hart, President of AmCham China. “How can you plan future investments if you can’t do due diligence on your future partners?”
Adding to the uncertainty, Hart said, is the lack of reason for the law enforcement actions.
“On the one hand, China says it wants FDI,” he said, referring to foreign direct investment. “But for the companies targeting China and trying to collect information, there seem to be limitations, and the really worrying thing is that it’s not clear to us where that limit is.”
Foreign companies have also become unnerved by increased restrictions on access to commercial information and a recent expansion of China’s anti-intelligence law that the US-China Business Council said “casts a wide net over the range of documents, data or materials deemed relevant to national security.”
There seem to be limitations, and the really worrying thing is that it’s not clear to us where that limit is.
Michael Hart, Chairman of AmCham China
While national security has long been at the center of both U.S. and Chinese policy decisions affecting business, Beijing has also cited those concerns to justify steps widely seen abroad as acts of state repression, such as the crackdown in Hong Kong and the mass surveillance and internment of Uighurs in the Xinjiang region.
At a meeting in Beijing last week, Chinese President Xi Jinping, who accuses the US of blocking China’s development, called for heightened national security measures and said the government should be prepared for “worst case” scenarios, Xinhua said. , China’s state news agency.
“During the meeting, it was emphasized that the complexity and severity of the national security challenges facing our country has increased dramatically,” the agency said.
In Washington, both Republicans and Democrats have debated a ban on the Chinese social media app TikTok, citing national security concerns, among other things. Semiconductor chips have also become a growing flashpoint between the two economic powerhouses.
Last year, the Biden administration imposed export controls designed to cut off China from chips and other strategically important technologies. It is also considering new restrictions on US investment in Chinese companies working on advanced semiconductors, artificial intelligence and quantum computing, according to congressional testimony last month.
In May, in what was widely seen as retaliation against export controls, Chinese regulators banned key infrastructure operators from buying products from US chipmaker Micron, saying it had failed a network security assessment.
US Secretary of Commerce Gina Raimondo described the move as “plain and simple economic coercion”. Mao, the spokesman for the State Department, in turn accused the US of economic coercion over restrictions it has imposed on more than 1,200 Chinese companies and individuals “despite the lack of hard evidence of wrongdoing”.
While it has been clear for some time that a foreign company’s data is not safe in China, companies now also have to worry about whether their employees will be questioned by state security or even jailed, the US executive said. Beijing’s widespread use of travel bans that prohibit foreigners from leaving the country has also raised serious concerns among businesses, he said.
“Once you take these actions and undermine trust, it’s not really clear how you fix that,” he said.
