How China can reassure nervous foreign investors before it’s too late

While US security moves only target and affect Chinese investments and trade, China’s responses are rattling investors around the world
For a start, Beijing must tamp down its high-profile anti-espionage campaign and review its exit ban – which investors find chilling

Wang Xiangwei

Published: 5:30am, 6 Nov 2023

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China’s President Xi Jinping and his US counterpart Joe Biden look set to meet in San Francisco later this month. They will no doubt focus on the Taiwan issue, the most significant challenge to a stable US-China relationship, but how to manage the “securitisation” of the bilateral economic relationship should also be a priority.

Beijing has accused Washington of playing up concerns about the security implications of their economic ties since 2018, when the Trump administration launched the trade war. Biden’s administration has escalated it into a chip war aimed at stifling China’s progress in cutting-edge technologies.

To Beijing, Washington appears to “securitise” almost every aspect of economic ties, from trade and technology to investment, in the name of national security. TikTok, a short-video sharing platform, is under closer scrutiny because of its Chinese ownership, and security concerns have even been raised about Chinese-made electric buses running in US cities.

Painting itself as the wronged party, Beijing maintains the US is solely to blame for everything that has gone wrong in the relationship.

But Beijing’s claim is disingenuous, to say the least.

Beijing is also busy “securitising” US-related trade and investment issues in response to Washington’s moves. This is in line with Beijing’s considerable shift towards security, away from development. The latest examples include sudden and little-explained raids and arrests concerning Taiwanese Apple supplier Foxconn and some American consultancies and other companies.

Flags are seen in front of the Capvision Partners headquarters in Shanghai on May 10. In May, Chinese authorities questioned and raided Capvision’s offices in Beijing, Shanghai, Shenzhen and Suzhou, accusing the consultancy of passing on sensitive information abroad. Last month, Capvision said it had passed China’s security assessment. Photo: EPA-EFE

Such actions contradict its stated goal of opening up wider to foreign investment and trade, and frighten away investors from the US and elsewhere.

In other words, while US moves only target and affect Chinese investments and trade, China’s responses are rattling investors around the world. It is high time for the Chinese government to review its polices; it acutely needs investment to revive an economy hit hard by three years of zero-Covid controls.

The key is to find a better balance between security and development to reassure investors at home and abroad – a key issue expected to be addressed at an important party plenum due to be held in the next few months.

Foreign investors’ sentiment towards China has soured. More are complaining privately, and bitterly, that China has become “uninvestable” – an ominous view unthinkable even five years ago.

In August, US Secretary of Commerce Gina Raimondo referred to this view during a visit to China, pointing to fines, raids and other actions against companies that have made it too risky to do business in China.

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China, which has rejected the allegation, should take the complaint seriously. Some officials still hold the outdated belief that China’s market is too big to miss. They must realise that foreign investor sentiment is on the edge of a precipice. Sweet-talking and a red-carpet welcome are no longer enough.

Over the past few months, some Hong-Kong-based fund managers have told me they find it increasingly difficult to persuade their headquarters or institutional investors to approve new investments in China, as opposed to India.

“We believe in China’s growth story and we want to invest but it is getting really hard,” one manager of a mega fund lamented, later saying he had decided to close his office in Hong Kong. He is not alone. Leading American funds including Vanguard and Sequoia plan to either shut down their business in China or split off China-related operations.

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As Beijing seeks to stabilise ties with the US and other Western countries, it should waste no time in taking substantive steps to reassure investors – before they leave for good.

For a start, Beijing must tamp down its “catch a spy” campaign, launched after its revised anti-espionage law in July. The law broadened the scope beyond leaks of state secrets and intelligence to include any “documents, data, materials or items related to national security and interests”.

A nationwide campaign has featured red banners on the streets and posters with a hotline to report any suspicious individual or activity. These are vivid reminders of the Mao years when people were encouraged to report on each other, even spouses and relatives, on any perceived deviation from the party line.

The Ministry of State Security, the usually secretive spy agency, has started to issue public comments on diplomatic, financial and economic issues, warning about sabotage by the so-called foreign actors.

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Westerners working in China and Chinese nationals working for foreign companies or organisations feel the chill.

This comes as ultranationalists dominate China’s social media and try to paint all Western countries as harbouring malicious intent while blasting their complaints or criticism – many valid – as baseless or having ulterior motives.

While every country has its anti-espionage laws, China’s high-profile campaign is causing unnecessary panic and worry.

Meanwhile, China’s “lying flat” malaise seems to have spread to its already inefficient bureaucracy. Officials, repeatedly ordered to listen to the party leadership, often sit on problems unless orders are given.

The latest example is the feet-dragging over the cancellation of the health declaration requirement for travellers entering or leaving the Chinese mainland. It was finally cancelled at the beginning of this month, nearly 11 months after Beijing lifted stringent border controls.

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Officials had ignored the mounting calls for cancellation until the order came down from the highest level. For many travellers, the procrastination left a bad taste in the mouth.

As repeatedly argued in this space, China must also review its policy of exit bans, which prevent overseas businessmen from leaving because of a business dispute or connections with individuals under investigation.

The policy is opaque and arbitrarily enforced, and hurts Beijing’s efforts to welcome foreign investment, simply because any overseas traveller could be stranded in China indefinitely.

Foreign investors are exiting China in a trickle, but it will soon become a river unless Beijing takes immediate and substantive steps to reassure them.

Wang Xiangwei is a former editor-in-chief of the South China Morning Post. He now teaches journalism at Baptist University