My latest thought of the day on China: 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

China must stop “pan-securitizing” trade and investment, of which it accuses US all the time.

China’s top leader Xi Jinping and his US counterpart Joe Biden look set to meet in San Francisco later this month, the culmination of a recent flurry of diplomatic activities to reduce tensions and preventing the frosty ties from veering into conflict.

They will no doubt focus upon the issue of Taiwan, the most significant challenge to a stable US-China relationship but how to manage the so-called securitization of the bilateral economic relationship should also be a priority for the upcoming summit.

Over the past five years, Beijing has accused Washington of playing up the latter’s concerns about the security implications of the economic ties since 2018 when the administration of Donald Trump launched the trade war against China. The Joe Biden administration has escalated it to a chip war, aiming at stifling China’s progress in cutting-edge technologies.

From Beijing’s point of view, Washington appears to pan-securitize almost every aspect of the economic ties from trade to technology to investment in the name of national security. TikTok, a short video sharing platform, is under closer scrutiny because of its Chinese ownership while some American legislators even raised security concerns about the Chinese-made electric buses running in the US cities.

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

As the proverb says that it takes two to tango, Beijing’s claim is disingenuous, to say the least.

Beijing is in fact also busy pan-securitizing the US-related trade and investment issues in response to Washington’s moves. The moves are in line with Beijing’s considerable shift towards security, away from development.  The latest examples include reports of sudden and little explained raids and arrests concerning Taiwanese Apple supplier Foxconn and a number of American consultancies and firms.  

Such actions not only contradict its own stated goal of opening up wider to foreign investment and trade to counter the so-called decoupling but also frighten away investors not only from the US but from the rest of the world.

In other words, while the US moves target and affect the Chinese investments and trade only, China’s responses rattle overseas investors around the world looking to do business in the country.

It is high time that the Chinese government should review its polices towards foreign investors at a time when the country acutely needs overseas investment to revive its economy hit hard by the three years of zero-Covid controls.

The key is to find a better balance between security and development to reassure investors both at home and abroad– a key issue expected to be addressed at an important plenum of the Communist Party’s senior officials scheduled for next month.

Foreign investors’ sentiment towards China has particularly soured over the past few years as an increasing number of investors have privately complained bitterly that China has become “uninvestable” – an ominous view which seemed unthinkable even five years ago.  

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

China has rejected the allegation angrily but should take the complaint seriously. This is particularly because some Chinese officials still hold the outdated belief that China’s market with a population of 1.4 billion including 400 million middle class people is too big for any serious foreign investor to miss even though some of them may have received unfair treatment in the past. 

Those officials must realize that foreign investors sentiment is on the edge of precipice. Those investors no longer harbor any good will as they face the cold reality. The sweet talking and red carpet welcome are no longer enough amid China’s pivot towards security and rising geopolitical tensions.

Over the past few months, a number of Hong Kong-based fund managers have told me that they have found it increasingly difficult to persuade their headquarters or their 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 recently lamented. He subsequently told me that he decided to close down his office in Hong Kong soon.  He is not alone. A number of leading American funds including Vanguard and Sequoia have planned to either shutter business in China or split off China-related operations.

As Beijing is seeking to stabilize ties with the US and other western countries,  it should waste no time in taking substantive steps to reassure investors before they pack their bags and leave China for good.

Here are a few suggestions.

For a start, Beijing must tamp down its “to catch a spy” campaign launched after its revised anti-espionage law took effect in July.

The law has broadened the scope beyond what it originally sought to prohibit – leaks of state secrets and intelligence to include any “documents, data, materials, or items related to national security and interests.”

A nationwide publicity campaign has featured red banners on the streets and posters with a hotline for reporting suspicious individuals or activities.

Those signs serve as vivid reminders of the bygone years of Mao Zedong when people were encouraged to report on each other, and even their spouses and relatives about their perceived deviations from the party lines, let alone capitalism sympathizers who were condemned as counterrevolutionaries.

Nowadays, westerners working in China and those Chinese nationals working for foreign companies or organizations particularly feel the chill of the expansive law at the time when the ultra-nationalists dominate China’s social media and try to paint all western countries as harbouring malicious intent against China as well as blasting their complaints or criticisms – many of which are valid – as baseless or having ulterior motives.

It is true that every country has its own anti-espionage laws but for most countries the way it is implemented tends to be low key and under the radar. China’s high-profile campaign of catching a spy serves nothing but causing unnecessary panic and worries among its own citizens and foreigners in China.

China’s malaise of “lying flat”movement which originally started among the country’s youth to reject pressure to over-work has ominously spread to the country’s already inefficient bureaucracy. As officials have been repeatedly ordered to listen to the party leadership all the time, they just sit on their hands in face of problems unless ordered to.  The latest example is that officials dragged their feet on cancelling the health declaration in the form of QR code, known as “Black code”, which was mandatory for all travelers entering or leaving the Chinese mainland. The cancellation became effective at the beginning of this month, nearly 11 months after Beijing lifted stringent border controls. Officials had ignored the mounting calls for cancellation until the order was given from the highest level. It may sound small but for many travellers, the procrastination left a bad taste in the mouth.  

As repeatedly argued in this space, China must review its policy of exit bans, which prevent overseas businessmen from leaving the country because of a business dispute or connections with individuals under investigation. The policy is opaque and arbitrarily enforced, which hurt Beijing’s efforts to welcome foreign investment, simply because any overseas traveller could face the unsavoury prospect of being stranded in China indefinitely.

Right now foreign investors are exiting China in a trickle but it will soon become a river unless Beijing must take immediate and substantive steps to reassure them.

Republished from SCMP: https://www.scmp.com/comment/opinion/article/3240118/how-china-can-reassure-nervous-foreign-investors-its-too-late