At Davos 2024, Chinese Premier Li Qiang declared, “We [China] embrace investments from businesses of all countries with open arms and will continue to work tirelessly to foster a market-oriented, law-based, and world-class business environment.”
His words are amongst the recent slew of comments issued by senior Chinese leaders in signalling that the country is sincere about courting international business – after three years of the pandemic, a tightening regulatory environment, and a precipitous shift towards supply chain realignment and adjustments from some of China’s largest trading partners, including the U.S. and the European Union. Whilst decoupling is by no means feasible or likely, the calls for “de-risking” reflect the deeply seated anxieties held by policymakers and businesses across these countries, concerning the purported ‘risks’ of over-reliance on China.
Externally, the global debate over the Chinese economy has also become increasingly polarised, split between those who insist that China has peaked and is set for irrevocable economic decline, and those who are more optimistic about China remaining on the steady path to overtaking the U.S. as the world’s largest economy in GDP terms. Internally, Chinese bureaucrats and policymakers alike are grappling with the extent to which the country must reorient its economy in order to bolster productivity, domestic consumption, and sectors of the economy beyond advanced manufacturing – whilst ensuring that it does not take on unsustainable debt or relapse into growth models that have exhausted their utility.
Economic rejuvenation requires Beijing to stabilise and pragmatically re-engage with the West, establishing clear commitment to China being a stable, certain, and transparent environment for foreign businesses. What does such re-engagement look like?
Firstly, it is crucial that Beijing does not fall into traps set up by those in the West who would be thrilled to see the fulfilment of their long-standing characterisations of the country as a global ‘threat’. 2024 is a critical year of elections around the world – with three out of the four most populous countries in the world having nation-wide elections. The first round of Indonesian Presidential Elections is due for February 14th, the Indian elections will occur in April – May, and the US Presidential Election is set to take place on November 5th. The EU parliamentary elections will occur in early June, whilst a General Election will most likely take place in the second half of the year in the UK.
As incumbents reorient their energy to focus on the ballot, preoccupation with domestic politics will likely dial the ‘heat’ in international disputes down a notch or two. Yet the growing scepticism towards China across the board in many of these states – save from Indonesia, which has sought to build closer economic ties under President Jokowi – will likely pave the way for provocative discourses propounded by many of the more opportunistically Sino-sceptical politicians in these states. Beijing must discern the signal from the noise. It must refrain from giving into the temptation to lash out or vociferously criticise its harshest critics, for doing so would only play into their very hands. Maintaining key baselines and core interests are understandable and valid; un-strategic bellicosity, on the other hand, would only be counterproductive.
Indeed, upholding the country’s interests requires strategic de-escalation paired with a combination of both strategic clarity and ambiguity. This applies across not only the most pivotal flashpoint in China’s relationship with the West – the Taiwan Straits, over which Presidents Biden and Xi reached a necessary mutual understanding during their meeting last November in San Francisco. Beijing made its stance crystal clear, yet has also pulled back on adopting excessively assertive actions in response to the recent January elections in Taiwan; this is a clear sign that China is capable of combining ideological clarity with escalation aversion. The imperative of strategic risk management also applies to the South China Sea, where China and a number of ASEAN nations (including Indonesia) are locked in bitter territorial disputes, and the Sino-Indian border, where clashes in 2020 precipitated a sweeping ban by Delhi of 59 apps with purportedly Chinese links.
Secondly, Beijing would benefit from directly addressing the concerns possessed by Western businesses operating in the country today. Meetings between Politburo members and globally leading corporations – such as Shanghai Party Secretary Chen Jining’s meeting with Tesla chief Elon Musk last year – are helpfully demonstrative of the administration’s sincerity about attracting foreign firms to double down on the country.
Yet the present, secular trends remain worrying. For the first time in over two decades, China’s FDI turned negative in Q3 last year. Some have attributed this to maligning and smearing by international commentators. Others believe that the causes are more structurally embedded, and involve a combination of policy uncertainty, byzantine regulations, and concerns over legal ensnarement and an increasing emphasis upon security by the state apparatus. I am inclined to see these concerns as somewhat overstated and transitory in nature, though such a view may not be shared by those who are relocating out of China.
There are clear low-hanging fruits where the country could further boost openness to foreign investment, including significantly expanding the Catalogue of Encouraged Industries for Foreign Investment, more proactively incorporating (via the reciprocal enforcement mechanism) Hong Kong-issued judgments into mainland courts – leveraging the city’s unique common-law jurisdiction and international legal credibility, and bolstering data transparency whilst reducing administrative barriers to entry for European businesses.
Thirdly, a fundamental question that faces China today is: what is the nature of the relationship it is seeking in relation to the proverbial “West” and developed economies? While China has increasingly and strategically positioned itself as a leading voice for the Global South, taking distinctively strategic positions over conflicts in Ukraine and Gaza, it is equally significant that the country maintains broadly robust and collaborative relations with the Global North, with G7 countries alone contributing towards 26.6% of global GDP in 2023, and 13.7% of global GDP growth between 2013 and 2023.
There is always the cliched argument – as expounded by those who are highly sceptical and resentful towards the West, and perhaps not without good reason – that China should be willing to “take on” the West. Yet such adversarial framing makes two critical mistakes. First, it unduly homogenises and lumps together all countries in the “West,” and assumes that countries from Germany to Japan, from Australia to Italy would share the zeal of some in America in engaging in an elaborate “containment” strategy against China. Secondly, it bizarrely pits China against the very institutions and pre-existing global economic order, from which the country has benefited substantially and is capable of transforming constructively – as opposed to clashing antagonistically.
Indeed, China is much better off being a bridge between the ‘West’ and the ‘Rest’, applying pressure on Western institutions to reform themselves, than to frame itself as a country of the ‘Rest’ taking on the ‘West’.