Multinational corporations in China must decide whether to withstand growing business risks under Beijing's intensified scrutiny or contemplate leaving due to heightened tensions with the U.S. in 2024.
During a phone interview with VOA Mandarin, Anna Ashton, director of the China corporate affairs program at the Eurasia Group, pointed out that Beijing had made changes to business regulations amid national security concerns and heightened U.S.-China tensions.
These changes have significantly increased uncertainty for foreign companies, prompting a trend of "de-risking" among cautious enterprises.
"That, plus the slower-than-expected return to normal growth after the end of the zero-COVID policies," Ashton said.
"So, this and geopolitical tensions with the U.S., a sort of sluggish Chinese economy… have been key drivers in terms of making the business environment difficult for foreign companies."
Concerns among foreign businesspeople might also stem from China's economic weakness. The World Bank's semiannual regional forecast on December 14 revised the country's growth projection, estimating a slowdown from 5.2 percent this year to 4.5 percent in 2024 (down from the previously expected 4.8 percent in April) and further to 4.3 percent in 2025.
According to the Guardian, 2024 will see tax reductions and fee cuts for businesses, coupled with increased aid for the struggling housing sector, primarily aimed at economic stabilization.
Monetary and credit policies will maintain a "prudent" approach. There is no indication of the government considering significant actions to elevate consumer demand or household incomes.
While Beijing still seeks foreign investment and puts efforts to attract foreign firms, national security now takes precedence.
China's newly revised Counter-Espionage Law, active since July 1, has raised concerns for U.S. companies. The vague definition of espionage within the law gives the Chinese government greater access and control over corporate data, potentially criminalizing routine business activities like market research.
With the changing environment, many companies demonstrated their response through relocation plans. Forrester Research, specializing in technology consulting, closed its China operations in May.
Meanwhile, the Gerson Lehrman Group laid off employees in June instead of expanding its company as planned. In November 2023, Vanguard Group and Gallup announced their withdrawal from China.
Even firms heavily reliant on China's manufacturing sector, like Apple, which established its manufacturing operations in China in 2001, are moving parts of their production lines to countries like India and Vietnam.
Foreign capitals dropped
This uncertainty led to a decline in the actual utilization of foreign capital within the country, as indicated by the most recent official data. The volume of foreign capital in use within the country contracted by 10 percent to CNY1.04 trillion ($147.4 billion).
China's stock market also witnessed a significant 87 percent decline in foreign investment in 2023. A recent Financial Times report highlighted a drastic drop in net foreign investment in China-listed stocks, plummeting from 235 billion yuan ($33 billion) in August to only 30.7 billion yuan ($4.33 billion).
Despite attempts to enhance U.S.-China relations and strengthen the financial system amid slowing growth, Chinese stocks continue to underperform globally.
While the S&P 500 index increased by 4.7 percent, China's benchmark CSI 300 index plummeted by more than 3 percent in December. Net foreign sales of Chinese stocks during this period totaled around 26 billion yuan ($3.66 billion).
In 2023, financial leaders, including Goldman Sachs, held high hopes for China's stock market, expecting a robust rebound after stringent COVID-19 measures.
However, contrasting economic signals between China and other emerging markets instead raise the question of whether Chinese stocks and broader emerging markets are attractive opportunities or potential value traps.
The State Administration of Foreign Exchange data in November revealed foreign direct investments (FDI) reported a negative value of $11.8 billion in the third quarter. This marked the first negative figure since recordkeeping commenced in 1998.
While China doesn't rely on foreign investment to fund its progress, FDI serves as a conduit for transferring international best practices and know-how to Chinese firms.