China has recently gone to great lengths to make sure the world knows it is open for business. Chinese Communist Party Chairman and General Secretary Xi Jinping has taken it upon himself several times this year to deliver this message to top world leaders and business leaders.
“In the next five years, China will continue to promote high-quality development and expand high-level opening-up,” Xi told Irish Prime Minister Micheal Martin in January. Xi also expressed his willingness to “intensify economic and trade cooperation, seek synergy of development strategies in areas such as artificial intelligence, digital economy, as well as pharmaceuticals and health, and encourage bilateral investments,” according to the statement. Reading from the Chinese Ministry of Foreign Affairs.
Then, later that month, Xi made his speech to outgoing British Prime Minister Keir Starmer. “As China launches its 15th Five-Year Plan, the two sides could expand win-win cooperation in the service sector. » Xi proposedspecifically mentioning cooperation in “education, health and finance, and… joint research and commercial applications in artificial intelligence, life sciences, new energy and low-carbon technologies for shared development and prosperity.”
And in May, during a state visit to China by U.S. President Donald Trump, Xi met with members of a high-level trade delegation that accompanied Trump. The delegation’s list reads like a who’s who of the business world: Elon Musk of Tesla and SpaceX, Jensen Huang of Nvidia, Tim Cook of Apple, Larry Fink of BlackRock, Kelly Ortberg of Boeing and many others.
Xi would have declared to the assembly of leaders that China “will only open its doors wider” and that “China-US economic and trade relations are mutually beneficial and win-win in nature.”
At the same time, for many companies considering first or further investments in China, other recent events have called into question the safety and viability of these potential investments.
China has, in recent years, issued new laws and decrees that impact the degree of protection of Chinese citizens. forced to act as an informant to the government. In effect, these laws require ordinary people to act as the eyes and ears of state security, reporting suspicious and seditious behavior, as well as anything they suspect of harming China’s national security.
It is inevitable that these laws will dampen the enthusiasm of foreign companies to invest in China. Any company would be reluctant to place its treasures and trust in a country that has turned its citizens – including employees of its own foreign-owned companies – into intelligence agents, under threat of legal action.
This may be the deciding factor for not investing in China at the moment, especially moving up the value chain. The higher the value of the technology, the more attention and interference it will attract from the Chinese government. Foreign businesses may increasingly find that other low-cost options are safer and more welcoming.
This is a difficult problem for China. Historically, nothing is more important to the Chinese Communist Party (CCP) than propagating its own position as the sole determining and ruling force of Chinese power. Thus, the party must ensure its own health before considering the impact this will have on other aspects of China’s development, notably the economy.
It is fair to say that China finds itself in a completely defensive position at this point in its history. As long as this remains true, the CCP would sacrifice everything, including much-needed foreign investment, to preserve itself.
China’s complicated history with foreign companies
Of course, the CCP has always exercised control over foreign investors. The difference between 40 years ago and today lies not in the substance of Chinese control, but in the methods. There may have been no national security law in 1986, for example, but the CCP’s surveillance, infiltration, and varying levels of control over foreign-invested enterprises were still there.
The Canadian government made this point in its summary of China’s national intelligence law. “Like much previous state security law, the law makes explicit what has long been done in practice,” the report concludes.
The main difference between then and now is that the activities that have allowed China to infiltrate and access information and intellectual property held by foreign-invested companies are more sophisticated. Today, these extraction efforts rely on digital technologies, whereas in the 20th century it was simply a simple paper trail. But the motivation remained the same.
This also applies to new requirements for the presence of CCP members in foreign companies in China. Today’s CCP has codified this requirement; two to four decades ago, this was simply done. A member of the Chinese government team helping a foreign company establish a presence in China would “recommend” someone for a key role in the new company, and most of the time the foreign party would acquiesce, fearing offending the Chinese official and possibly losing his support.
More than forty years ago, when the doors to the outside world opened, Chinese leaders also made the same promises that Xi Jinping made this year: China is open. China will be more open. China welcomes foreign investment. For decades, Chinese leaders have reiterated their support for foreign investment.
Fundamentally, China’s opening to foreign investment – and, implicitly, capitalism – constituted a stunning abandonment of the CCP’s core values and principles. Why would the party have a founding principle of its existence?
Because attracting foreign funding was an imperative. It’s not that China lacks talent. Quite the contrary: there was a bountiful harvest of human resources ready to be educated, trained, and deployed on behalf of China’s burgeoning national enterprises.
But where did this education come from? In the telecommunications field, for example, there were few, if any, engineers with training in cutting-edge digital networking systems. How can we fill this gap, not only in the telecommunications sector but also in dozens of other key sectors and technologies?
Although many in the CCP and society at large thought so, there was only one way to introduce these solutions from the developed world to China in order to accelerate its own development and thus guard against the perceived threat of foreign exploitation. Foreigners by the dozens, then hundreds and thousands, were brought in by foreign companies, which were allowed and encouraged to sell their key infrastructure technologies to China.
It was not enough to introduce the systems, whether hardware or software, by themselves; It was essential that people who knew how to build, operate, customize, install, maintain and upgrade these systems also contributed their talents. Over the years, Chinese talents have absorbed and used what was transmitted to them by the foreign presence in China.
Today, a large part of the foreign population has disappeared, as jobs have been localized. And China’s relationship with foreign investment has also undergone a sea change.
FDI inflows and two decrees
There is no doubt that foreign direct investment (FDI) flows into China have declined over the past four years. It is reasonable to assume that at least part of this decline in FDI can be attributed to corporate unease with China’s intelligence laws.
Data from the United Nations Conference on Trade and Development (UNCTAD) showed that FDI flows into China increased from a peak of $189 billion in 2022 to $116 billion in 2024. Before that, foreign investment in China had been on a steady upward trajectory since 2000, when FDI was just $41 billion. FDI figures fell only slightly during the global financial crisis.
Two decrees issued earlier this year are expected to lead to an even greater decline in FDI flows. These regulations, known as Decree No. 834 and Decree No. 835, emanate from the Council of State as apparent measures to counteract the effect of foreign sanctions. They restrict the sharing of supply chain data and punish companies that stop working with Chinese suppliers, allegedly because such disruptions would harm entire supply chains.
The most frightening thing is that they invoke criminal liability for company executives who violate the broad compliance and control measures provided for in these decrees. It goes without saying that any person or company doing or seeking to do business in China must understand the comprehensive scope of these mandates and act appropriately.
This year, as always, China’s official message is that foreign investment is welcome and necessary. However, American and European companies and the chambers of commerce that represent them do not seem convinced that the declarations from above represent real progress on the ground. As has always been the case with the implementation of foreign investment in China, it often seems that despite official rhetoric, those charged with administering policy have not gotten the message.
Ultimately, there is a push and pull mechanism at work in Chinese politics. On the one hand, China’s most powerful man unequivocally declares that the door is “wide open” to investment from around the world.
On the other hand, when factoring into this invitation the effects of national security laws and executive orders, even an excellent business case for investing in China might ultimately reveal that the risk is too high and the potential costs too difficult to avoid. Ultimately, China’s message, whether it realizes it or not, is actually more nuanced than simply “come in.” China’s message, as interpreted by foreign companies, is: “Enter, but beware.”