Many CEOs Attend China’s Red Carpet, but Few Anticipate Investing Funds

BEIJING—The Chinese communist regime hosted a series of events to welcome foreign executives in an effort to stop the decline in corporate investment in China.

However, many executives leave China with a sense of caution, believing that while things may not be worsening, the risks of expanding in China still outweigh the benefits.

Foreign direct investment only accounts for 3 percent of total investment in China, but it has been decreasing for the past two years. Investment from overseas is seen as a sign of confidence in China’s economy and a way to enhance the competitiveness of Chinese companies.

Data from China’s commerce ministry indicates an 8 percent decrease in foreign direct investment last year. A broader measure by the currency exchange regulator, which includes retained earnings, shows an approximately 80 percent decline in 2023 to $33 billion, the most significant drop since 1980.

Several factors have contributed to the diminished appeal of investing in China, including concerns about the sustainability of economic recovery, increased regulation, Beijing’s focus on developing national champions in key industries, and the country’s relations with the United States, which are perceived as stable but strained.

Executives also noted that Chinese companies with ties to the Chinese Communist Party (CCP) have managed to avoid the same profit-and-loss pressures that foreign investors face. This has led to excessive capacity in industries like vehicle manufacturing.

“We would like to see Chinese competitors also have to make profits to stay alive,” Mats Harborn, president of truckmaker Scania China, told Reuters at Invest China. He emphasized the importance of eliminating weaker actors in the supply chain to create a more competitive market.

Attendees noted a sense of promise fatigue among investors. The CCP has announced numerous measures to restore foreign investor confidence since August, but the European Chamber of Commerce in China President Jens Eskelund stated that these measures have not been consistently implemented, leaving European firms feeling disadvantaged in various aspects.

Despite challenges, the events provided an opportunity for companies to express their concerns. U.S. pharmaceutical and life science companies used the China Development Forum to address issues with China’s data regulations affecting their competitiveness.

Amid the meetings, questions were raised about the selective engagements with international companies. The absence of China’s second-ranking official Li Qiang at the CDF and the exclusive meeting with U.S. CEOs led by Chinese leader Xi Jinping cast doubts on China’s approach to foreign investors.

“It is an awkward signal to other investors and showcases how strategically and selectively China chooses to engage with international companies,” said Max Zenglein, chief economist at MERICS.