Does China want foreign investment?

On March 30, at the Boao Forum, Chinese Premier Li Qiang told foreign business leaders that China had always attached great importance to attracting and utilising foreign investment.
Since then, security agents have conducted multiple raids on the China offices of three large U.S. consultancies that provide essential market research and due diligence to the foreign investors who are the main lobbyists for Beijing in the Western world.
In April, Beijing broadened its Counter-Espionage Law from covering state secrets and intelligence to any “documents, data, material or items related to national security and interests,” without defining the details.
What is going on?
“The future of economic globalisation is at risk,” commented the Financial Times in an editorial on the raids. “It is sending chills to the whole foreign business community,” said Ker Gibbs, former president of the American Chamber of Commerce in Shanghai.
The three consulting firms are Bain & Company, Mintz and Capvision. The services of such companies are essential to foreign investors, especially those not large enough on their own to evaluate Chinese companies, products and individuals whom they wish to invest in or co-operate with.
Information in the public domain about such partners, especially those that are not listed, is limited. So investors have to turn to consulting firms for a detailed and accurate picture. This is even more the case for institutions like pension funds or asset managers with no physical presence in China. How can they evaluate a firm into which they might invest hundreds of millions of dollars of their pensioners’ money?
Chinese state television said that Capvision was accused of helping to leak information about Chinese military technology industry to foreigners.
On its website, Capvision said that, with headquarters in New York City and Shanghai, it provided consultations, survey solution, group conference calls and customised research services to more than 2,000 clients. It has 600 researchers and 450,000 industry professionals and offices in Shanghai, Beijing, Hong Kong, Suzhou and Shenzhen in addition to New York.
The raids come at a critical moment for China. During the Covid pandemic, thousands of foreigners left China. Since the pandemic, Beijing has re-launched the economy, but with mixed results. In the first quarter of 2023, GDP grew by an annual 4.5 per cent, industrial output was up three per cent and investment in fixed assets rose 5.1 per cent. Youth unemployment is near the record level and consumer spending weak.
To achieve its full 2023 GDP target of about five per cent, Beijing badly needs foreign investment. But its policies are losing the confidence of foreign companies. The raids could also dissuade foreign employees from taking up posts in China, for fear of surveillance and possible detention.
In its Business in China White Paper published in April, the American Chamber of Commerce said that, due to concerns about an uncertain policy environment, 27 per cent of its members were considering countries other than China in making investment decisions, up from six per cent in a survey last November.
Of the members, 87 per cent were pessimistic about the outlook for Sino-U.S. relations, up from 73 per cent in November.
The survey said that 38 per cent of member companies felt that foreign companies were treated unfairly as compared with domestic companies, especially in regulatory enforcement, licensing and market access and government financial support/subsidies.
“Almost half of our members felt ‘less welcome’ in China, with greater than one-third of survey participants expressing unfair treatment towards foreign companies by government policies and subsequent enforcement actions,” it said.
Richard Leung, a business consultant in Hong Kong, said that, within the Chinese government, there were different interests. “Departments dealing with the economy favour foreign investment to provide new jobs, technology and capital.
“But departments dealing with security and ideology take a different view. They say that, as the world’s second largest economy, China no longer needs the investment it did in the early years of the reform policy. It has abundant capital, technology and human talent. In China during the first three decades after 1949, foreign investment was very limited.
“In the Marxist view, foreign companies are not ‘neutral’ but represent the interests of the countries they come from. If those countries are hostile to China, such investments could be a security risk,” he said.
He said that, for consultancies and other middlemen, the red lines and definition of secrets were unclear. “Is an academic paper a state secret? Are internal reports of Chinese companies a state secret? With the raids well publicised on state television, who dares to meet a foreign diplomat, journalist or consultant?”
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