April 19, 2024


China’s State Council has unveiled an action plan to attract more foreign investment, as the world’s second largest economy scrambles to shore up its growth engine amid weak domestic demand and other deep structural challenges.

The plan aims to further open up the Chinese market to “attract and utilize” foreign investment, which is an “important force” for driving the country’s economic development, according to a document published Tuesday.

The plan put forward 24 measures, including trimming the list of economic activities in which foreign investment is restricted, encouraging greater foreign investment in high-tech and strategic fields like semiconductors and advanced equipment, and expanding foreign financial institutions’ access to the Chinese market.

China’s charm offensive

Rolling out policy measures is one thing. Whether those measures actually achieve their intended effects is another — and that hinges on two factors.

One, are the measures substantive or just fluff? Beijing’s move in October to remove all restrictions on foreign investment in the domestic manufacturing sector, for example, was largely symbolic, given that few restrictions actually remained.

And two, will foreign companies bite? China is mounting a charm offensive to lure back foreigners with more flights and eased visa rules — but it may be too little, too late. Beijing faces an uphill battle to make the country attractive foreign investors again.

Cracking down or easing up?

Last year, foreign direct investment into China collapsed to a 30-year low, though external factors like higher interest rates in the U.S. played a role. An increasingly opaque business environment — with restrictive data access rules, vague new laws that potentially criminalize regular business activities, and a move to curb access to a judicial database — makes doing business in China that much harder. And the business advisory and corporate intelligence firms that would ordinarily be helping foreign companies gauge risks and opportunities have themselves been targeted by Beijing’s expanding anti-espionage campaign. A new, draconian national security law, passed in record speed by Hong Kong’s rubber-stamp legislature this week, is unlikely to improve foreign firms’ view of the Chinese business environment.

Plus, the government’s erratic treatment of both domestic and foreign companies is likely to continue as President Xi Jinping has cemented his grip on power, giving the Chinese Communist Party greater influence over all aspects of government and doing away with any hint of opposition.

All this is happening against the backdrop of intensifying geopolitical tensions between the U.S. and China. At best, that increases the challenges of doing business in China. And at worst, foreign companies may find themselves targeted by nationalist boycotts, raided by police, subjected to commercial coercion, or banned outright.

That all makes for a tough selling proposition.

 



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