The China Development Forum, a government-organized conference, was a moment for Beijing to renew its efforts to win over foreign companies. Many of the dozens of business leaders there were on their first trip to China since the country closed its markets to the world and derailed its economy with tough Covid policies. Wang Wentao, China’s Minister of Commerce, has vowed to remove the obstacles that prevent companies from investing more.
The goodwill did not last long.
The recent crackdown on consulting and advisory firms with foreign ties through raids, arrests and arrests has reignited concerns about doing business in China. Executives are exploring how to reduce threats to their businesses and protect their employees.
In recent years, some companies and investors have already begun to consider whether the risks of investing in China outweigh the benefits.
And as Xi Jinping, China’s top leader, demands that Beijing strengthen its national security and limit information to foreign governments and companies, some companies are taking action.
Dan Harris, a Seattle lawyer who works with foreign companies in China, said he has recently been contacted by an unusually large number of companies looking for ways to reduce their presence in China without leaving altogether.
One of his clients, a US furniture maker, is working on a deal to distribute his products through a Chinese company so he can get his US employees out of the country. A US education company is closing its units in China and licensing its technology to its current Chinese employees.
Reports of raids or official security visits to prominent consulting firms in recent months, including US companies such as the Mintz Group and Bain & Company and recently Capvision Partners, a consultancy based in New York and Shanghai, have caused alarm. These companies help foreign companies evaluate investments in a company. They play a crucial role in China, where reliable information is hard to come by.
Changes passed in April to China’s counterintelligence law deepened concern. Employees of foreign companies in China could be considered spies for carrying out normal business practices, such as gathering information about competitors, markets, and industries.
Liu Pengyu, a spokesman for the Chinese embassy in Washington, said China welcomes foreign companies. “All companies in China must operate in accordance with the law,” he said.
China has always been a risk for foreign companies. During its rise to become the world’s second-largest economy, companies ignored many red flags. But now, with growth stalling and risks multiplying, the calculus is different.
The number of deals made has decreased. US companies announced 25 business deals in China in 2022, up from 56 the previous year, data services firm Dealogic reports. Business advisers say new focus areas include Japan, South Korea and Singapore.
While companies and investors may reconsider pumping new money into China, a divorce from China is unlikely, at least in the short term.
For manufacturers, no other country can challenge China’s infrastructure and the size of its skilled workforce. Companies that have products to sell are reluctant to abandon a market with 1.4 billion potential consumers.
“Nobody that I know of is really leaving China,” said Michael McAdoo, a partner in the global trade group at Boston Consulting Group. “Maybe they’re just looking at other places where they can balance that investment that they’ve made historically there.”
By extending new security measures throughout the economy, China is amplifying what was already one of the biggest risks of investing in China: a lack of transparency.
“It’s going to backfire,” said Andrew Collier, managing director of Orient Capital, a Hong Kong-based economic research firm. “Anyone who wants to build a $50 million plant is not going to feel comfortable doing it because they won’t be able to research the location, the land involved, the partners or anything.”
Victoria Kim and Claire Fu contributed reporting.
By: This article was written by Daisuke Wakabayashi, Ana Swanson and Lauren Hirsch
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6747110, IMPORTING DATE: 2023-06-05 22:30:07
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