Chinese President Xi Jinping has focused his appeals on foreign business leaders. Last November, in San Francisco, he took advantage of the Asia-Pacific Economic Cooperation (APEC) summit and his meeting with President Joe Biden to speak at a dinner with U. S. leaders. He promised that his country would be in a safe, reliable and successful position to invest. Most recently, he organized an assembly of foreign leaders in Beijing to reassure them and inspire direct investment in China.
Xi has a clever explanation for why he would court foreign investment. The Chinese economy wants the kind of expansion it would bring. The speed of genuine expansion has slowed, and Chinese consumers and personal corporations have lost confidence in the country’s economic future. choose to save instead of spend. Falling real estate values and falling inventory costs have discouraged investment and risk-taking in general. China’s private corporations have reduced the amounts they planned for their expansion. Public spending on infrastructure is more complicated than it once was, as Beijing runs larger budget deficits than it would like and local governments face huge debt overruns. Xi and China want stimulus in dollars, yen and euros from abroad just to meet reduced 5% genuine expansion targets for this year. The foreigners, however, were timid.
Indeed, U. S. leaders have shown enthusiasm in reaction to Xi’s pleas. They vigorously applauded Xi’s speech in San Francisco and even gave him a standing ovation. This year’s invitation to Beijing garnered a greater number of reactions than last year’s. Only 23 executives from the largest U. S. countries. corporations attended last year. This year, that number has risen to 34, and more experienced personalities are present, coming from such well-known names as Apple, McKinsey, Blackstone, AMD, Qualcomm, Micron Technology, Exxon Mobil, Cargill, Bristol-Meyers Squibb, Pfizer and Hewlett. But despite all the smiles, applause and positive reactions, the money didn’t come. This is unlikely to be the case.
Beijing’s Ministry of Commerce reports that in the first two months of this year, foreign direct investment in China has continued to decline for several months. In January and February, China attracted about 215 billion yuan ($30 billion) of that money, down about 20% from last year. The latter figure shows a downward acceleration from the overall 8% drop recorded in 2023. If deeds speak louder than words, the ebb of foreign capital flows drowns out the applause Xi heard in San Francisco.
The reasons why cash is kept away are the most telling for the future. Part of the challenge is China’s slowing growth rate. There is also the legacy of the pandemic and the lockdown measures imposed by President Xi’s zero-Covid policy that persisted for years. The inevitable delivery errors that occurred and were repeated around this time undermined China’s reputation for trustworthiness, which once attracted investment money from the United States, Europe and Japan. Nothing Beijing can do now will replace this history, even if over time the memories fade. it will fade away.
Nor can Beijing replace the factor of emerging costs. While China has been suffering from deflation lately, years of rising wages have put an end to the economy’s longstanding reputation as a cheap producer. Over the past decade, Chinese wages have increased by more than 100%, or about 7. 5% per year. Over the past five years, the speed has slowed, albeit only slightly. Wage expansion in this most recent period has averaged just about 5. 5% per year. Most importantly for investment flows, this rate of profit is faster than domestic wage expansion in the United States, Europe, or Japan, and faster than China’s festival for foreign investment funds, in Vietnam, for example, Indonesia, the Philippines, and Mexico. China is unlikely to oppose this, especially since discontent among the Chinese public is already high.
Even if this were possible, Beijing is highly unlikely to succeed in a major impediment to investment flows: its growing obsession with security and espionage. U. S. , European, and Japanese leaders have complained of major intrusions resulting from this obsession, explaining how those intrusions interfere with the ability to conduct their business, especially when it comes to things like gathering knowledge and communications with their headquarters. These leaders point to raids carried out under Beijing’s new espionage legislation against two U. S. consultants, Bain
Obviously, Xi is aware of China’s economic desire for foreign investment, as well as the existing obstacles. He’s exercised his charm and, if his standing ovation in San Francisco is overlooked, he’s had enough. But as evidenced by the moves of foreign investors, they want more substance than charm.