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China Must Do More to Restore Foreign Business Confidence

Sep 19, 2022
  • Brian Wong

    Assistant Professor in Philosophy, HKU and Rhodes Scholar

A recent survey by the U.S.-China Business Council revealed that American firms’ optimism about China has declined to new nadirs – in face of significant geopolitical tensions, stringent COVID-19 policies, and worsening trade relations between Beijing and Washington. 

Whilst over a half (51%) of respondents expressed optimism concerning their business outlook in China, many had responded by noting that the immediate headwinds confronting the Chinese economy have rendered their continued presence in the country (though not necessarily the region – alternatives abound, to some extent, in Vietnam and Indonesia, both rapidly growing economies) subject to unprecedented uncertainty. 

To be clear, foreign firms’ presence in China serves to benefit both Chinese citizens and these firms alike. Foreign investment and capital – represented and discharged through these firms within the country – play a pivotal role in propping up the country’s continued growth, whilst tax returns and trade deals between state-owned enterprises and foreign firms have been integral to China’s growth trajectory and economic expansion. Additionally, foreign innovation – whilst by no means the only source of innovation, given the astronomical progress made by Chinese firms and tech entrepreneurs over recent years – remains a crucial pillar in Beijing’s shift towards productivity-driven growth (away from an investment-intensive approach). 

The benefits of remaining in China in the long run – with its burgeoning middle class and sizable class of skilled labour – are also plentiful. The potential prowess of the Chinese consumer markets remains highly attractive and vital for firms, as they seek to hedge against the prospects of an economic recession across America and Europe. A decline in propensity and willingness to engage with China is thus in the interest of no one – though the difficult present circumstances could well render withdrawal or downsizing an unwise albeit intuitive pathway for foreign businesses in the country. The concerns of foreign firms must thus be taken seriously for China to revitalise an economy currently enmeshed in precarity. 

There are three prongs of a comprehensive solution package that must be adopted. First, it is high time that China reduced the barriers to entry, travel, and exit for foreign visitors. Quarantine-free business visas, coupled with expedited entry requirements and COVID-19 testing procedures (streamlined and minimised), as well as greater transparency on the roadmap out of the present state of lockdowns and mass quarantines, would be helpful. Exceptions should not be made for foreign businesses – instead, the policies should be couched in terms of all corporate and business travellers, including domestic and state-owned enterprises, whose employees stand to gain too from relaxed regulations, which would enable them to conduct much-needed visits and exchanges abroad. There must also be greater certainty and sensitivity to needs of individuals involved when it comes to quarantine and social distancing measures – separation of families, home isolation for protracted periods, and other episodes of ignominy (that have left long-lasting damages on China’s international reputation abroad) should be quelled promptly and efficaciously. With its pragmatic approach to decision-making, the Chinese state apparatus can and should do more to respond. 

Second, China remains a vital pillar to global economic and technological growth. One of the most oft-touted lines of criticisms directed towards China is its protectionist tendencies – and tendency to favour domestic and state-owned firms at the expense of foreign counterparts. Whilst many of these allegations must be placed into the context that the industries governed under protectionist rules tend to be strategic industries of political and institutional importance, it is not unreasonable to suggest that the loosening of regulations concerning barriers to entry and admission (as evidenced by past successes such as the banking sector – where central government regulators had proactively reduced barriers and costs of participation for foreign firms) would be helpful in reinvigorating stagnating sectors, such as education, technology, and real estate. In particular, Beijing’s much-championed empowering of small and medium enterprises – in the aftermath of the anti-trust crackdowns and regulations implemented over the past two years – would certainly benefit from joint ventures and injection of capital from friendly foreign collaborators, who would be willing to support the diversification and increased competitiveness within the Chinese economy. Suspending unduly restrictive clauses over foreign investment, especially across projects over which the central administration already possesses firm oversight, would be helpful in enticing new capital to enter into the market. Business confidence and interest come with perceived opportunities and lucrativeness. 

Finally, whilst Sino-American collaboration has indeed been thwarted by reckless, even dangerous, plays for personal power and grandstanding in the political arena, the economic sphere is still brimming with potential. The recently forged consensus on auditing Chinese firms listed on Wall Street – as well as talk of prospective opening-up of Chinese markets to more international capital – highlights the fact that even amidst the bluster and bravado, there exists ground for pragmatic compromises to be sought. American regulators would benefit from adopting a less paranoid attitude towards Chinese firms, a vast majority of which are unlikely to pose actual security risks; Chinese firms must come to understand the reservations that guide their reception abroad, and navigate the legal quagmire and hurdles with patience and tact. Only through such shifts back towards the centre in the business sector, could we see hope for greater partial normalisation of the precipitously tense relations between China and the United States. The path forward may be difficult, but it remains my hope that technocrats and bureaucrats in China know they are doing – and can do so whilst steering clear of any political landmines or hard constraints that guide the upper echelons in state decision-making.

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