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Xi Speech on Foreign Investment in China Leaves Many Questions

China's President Xi Jinping sits next to other world leaders during the Asia-Pacific Economic Cooperation conference in San Francisco, California, Nov. 16, 2023.
China's President Xi Jinping sits next to other world leaders during the Asia-Pacific Economic Cooperation conference in San Francisco, California, Nov. 16, 2023.

Chinese President Xi Jinping wants corporate leaders to know that Beijing is taking serious steps to create a more business-friendly climate in China, but it is unclear that his remarks will slow the widespread exodus of foreign investment from Asia's largest economy.

In written remarks delivered Thursday during the Asia-Pacific Economic Cooperation (APEC) CEO Summit in San Francisco, California, Xi said that the Chinese Communist Party, which he leads, is committed to "high quality" development in China and that it is pursuing that goal "with our doors open."

"No matter how the international situation evolves, China's resolve to foster a market-oriented, law-based and world-class business environment will not change," Xi said. "And our policy of providing equal and quality services to foreign investors will not change."

Xi committed to improving the protection of foreign interests in China, to reducing the number of industries in which foreign interests are not allowed to invest, and to ensuring that foreign investors in China receive "national" treatment, meaning that they will enjoy the same rights as Chinese investors. Xi also vowed to "continue to strengthen" intellectual property rights protections.

The Chinese leader concluded by pledging to take new "heart-warming" measures to make it easier for foreign businesspeople to travel to and remain in China.

Economic distress

The backdrop of Xi's remarks is an economic environment in which China's growth has slowed, and many foreign companies are having second thoughts about their investments there. Much of that concern is related to heavy-handed and unpredictable government regulation and legal harassment of foreign business executives.

Earlier this year during a visit to China, U.S. Commerce Secretary Gina Raimondo echoed the concerns of many companies doing business in China, when she said that many U.S. corporate leaders have told her that China is becoming "uninvestable" because the environment is "too risky."

Adding to the pressure is a growing trend toward the diversification of critical supply chains. The COVID-19 pandemic and China's draconian quarantine rules — which shut down entire cities for weeks at a time and shuttered ports and factories — made other countries wary about being overly reliant on China for critical goods.

Investment declining

After years of strong foreign direct investment in China, the flow of outside money into the country slowed dramatically in 2022. Then, in the third quarter of this year, direct investment liabilities in China's balance of payments — a figure that tracks the movement of money connected to foreign companies — was a negative $11.8 billion. It was the first time since data collection began in 1998 that the figure was not in positive territory.

At the same time, the country is facing a crisis in its real estate industry — which accounts for a disproportionately large share of GDP — high unemployment among young workers and a banking system plagued by bad debts.

Actions by the U.S. have also worked against Chinese interests. Washington has, since 2019, pursued a policy of locking Huawei, China's biggest telecommunications firm, out of the market for the development of 5G mobile technology in much of the West.

More recently, the Biden administration has placed heavy restrictions on the sale of advanced semiconductor technology to China. The stated reason is to stop the Chinese military from getting access to the most advanced computer chips on the market, but Beijing has claimed it is part of a larger U.S. effort to stifle China's economic development.

What's next?

Peter A. Petri, a professor of international finance at the Brandeis International Business School, told VOA that while Xi did hit on some of the topics that are of most concern to foreign investors, it was not clear that the Chinese president's remarks will do much to ease their worries.

"But what is next?" Petri wrote in an email exchange. "Uncertainty about U.S.-China relations is the reason many U.S. companies are pulling out of China, and turning that around will take years of a generally positive environment. Both countries will have to show that long-term investments make sense again — [that they are now] viable after years of undermining them."

"None of this will solve China's immediate short-term economic challenges," he said, "except perhaps by signaling to domestic investors that the freefall in U.S. relations has stopped."

Concerns unaddressed

Business leaders may have been frustrated by some of the things that Xi failed to address in his remarks, said Rafiq Dossani, director of the RAND Center for Asia Pacific Policy. Specifically, he said, business leaders are very concerned about the application of the Law on Foreign Relations of the People's Republic of China and the Anti-Espionage Law of the People's Republic of China, both of which went into effect in July.

The two laws create serious compliance concerns for foreign businesses. The Foreign Relations law puts companies at risk of prosecution for complying with sanctions against China imposed by other countries — like the U.S. — if China believes the sanctions are counter to international law. The Anti-Espionage law grants broad powers to the state to demand information from businesses operating in China and expands the definition of activities the government considers espionage.

"With all the control issues, the new law really upset businesses from every country, American businesses included," Dossani told VOA.

On the positive side, Dossani said that Xi's discussion of national treatment of foreign investors could be a good sign.

"If Xi is saying this is going to be now, in practice, a level playing field, it means a lot," he said. "The promise is interesting. We'll have to see how it's fulfilled."