China has recently gone to great lengths to ensure the world knows it is open for business. President and General Secretary of the Chinese Communist Party, Xi Jinping, has repeatedly taken it upon himself this year to deliver that message to key world leaders and corporate heads.
“Over the next five years, China will continue to promote high-quality development and expand high-standard opening-up,” Xi told Irish Prime Minister Micheal Martin in January. Xi also expressed a willingness “to step up economic and trade cooperation, seek synergy of development strategies in such areas as artificial intelligence, the digital economy, and pharmaceuticals and health, and encourage two-way investment,” according to the Chinese Foreign Ministry readout.
Then, later that month, Xi made his pitch to the now-outgoing British Prime Minister Keir Starmer. “As China kicks off its 15th Five-Year Plan, the two sides may expand win-win cooperation in the services sector,” Xi proposed, specifically mentioning cooperation in “education, health, and finance, and… joint research and commercial application in artificial intelligence, life sciences, new energy, and low-carbon technologies for shared development and prosperity.”
And in May, on the occasion of a state visit to China by U.S. President Donald Trump, Xi met with members of a high-level business delegation who accompanied Trump. The delegation roster reads like a who’s who of global business: 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 reportedly told the line-up of executives that China “will only open its door wider” and that “China-U.S. economic and trade ties are mutually beneficial and win-win in nature.”
At the same time, for many companies considering first-time or further investment in China, other recent events have brought into question the safety and viability of those potential investments.
China has, over the past few years, issued new laws and decrees that impact the degree to which Chinese citizens are obligated to act as informants to the government. Effectively, these laws require ordinary people to act as eyes and ears of state security, reporting suspicious and seditious behavior, as well as anything they suspect could adversely impact the national security of China.
It is inevitable that these laws would dampen the enthusiasm of foreign companies to invest in China. Any company would be reluctant to put their treasure and trust into a country that has turned its citizens – including the employees of their very own foreign-invested enterprises – into intelligence assets, under penalty of law.
That may be the deciding factor against investing in China for the time being, especially as one goes up the value chain. The higher the value of the technology, the more it will attract attention and interference from the Chinese government. Foreign companies 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 single defining and leading force of Chinese power. Thus, the party must ensure its own health before taking into consideration the impact that has on other aspects of China’s development, including the economy.
It is fair to say that China is in a full defensive posture at this moment in its history. As long as that holds true, the CCP would sacrifice anything, including much-needed foreign investment, in order to preserve itself.
China’s Complicated History With Foreign Businesses
Of course, the CCP has always exerted control over foreign investors. The difference between 40 years ago and today is not the substance of China’s control, but the methods. There may not have been a national security law in 1986, for example, but the CCP’s surveillance of, infiltration into, and varying levels of control over foreign invested enterprises were still there.
The Canadian government made this very point in its summary of China’s National Intelligence Law. “Like much of the past state security legislation, the law makes explicit what has long been done in practice,” the report concluded.
The primary difference between then and now is that the activities that allowed China to infiltrate and access information and intellectual property held by foreign-invested enterprises are more sophisticated. Today, these extraction efforts rely on digital technologies, compared to just a paper trail in the 20th century. But the motivation has remained the same.
That also goes for new requirements to have CCP members in foreign companies in China. Today’s CCP has codified that requirement; two to four decades ago, it was simply done. A member of the Chinese government team helping a foreign company set up shop in China would “recommend” a person to a key role in the new company, and most of the time the foreign side would acquiesce, afraid to offend the Chinese official, and possibly lose his support.
Over four decades ago, when doors to the outside world were being opened, Chinese leaders were also making the same promises as Xi Jinping has made this year: China is open. China will be further opened. China welcomes foreign investment. For decades, then, Chinese leadership has reiterated its support for foreign investment.
In fundamental ways, China’s openness to foreign investment – and, implicitly, capitalism – was an astounding abandonment of the core values and principles of the CCP. Why would the party dispose of a foundational premise for its existence?
Because attracting foreign funding was a do or die imperative. It was not that there was a dearth of talent in China. Quite the opposite: There was a bumper crop of ready human resources waiting to be educated, trained, and deployed on behalf of China’s nascent domestic companies.
But where was that education to come from? In the field of telecommunications, for example, there were few engineers who had some, or really any training in state-of-the-art digital network systems. How to make up for that deficit, not only in telecoms but also in dozens of other industries and key technologies?
As onerous as many in the CCP and in society at large felt it to be, there was only one way to bring those developed-world solutions into China in order to accelerate its own development and thus gird itself against the perceived threat of foreign exploitation. Foreigners by the dozens and then the hundreds and thousands were brought in by foreign companies, who were being allowed and encouraged to sell their key infrastructure technology into China.
It was not enough to bring the systems in, either hardware or software, by themselves; it was critical that the people who knew how to build, operate, customize, install, maintain, and upgrade those systems come with their talents, as well. Over the years, Chinese talent absorbed and utilized what had been handed over to them by the foreign presence in China.
Today, much of the foreign population is gone, as jobs have been localized. And China’s relationship with foreign investment has undergone a sea change as well.
FDI Inflows and Two Decrees
There is no question that foreign direct investment (FDI) inflows into China have waned over the last four years. It is safe to assume that at least a portion of that FDI decrease can be attributed to corporate discomfort over China’s intelligence laws.
Data from the United Nations Conference on Trade and Development (UNCTAD) showed that FDI inflows into China fell from a high 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 numbers dropped only by a small dips during the Global Financial Crisis.
Two decrees published earlier this year are likely drive FDI inflows down even more. These regulations, known as Decree No. 834 and Decree No. 835, came down from the State Council as ostensible measures to counteract the effect of foreign sanctions. They restrict supply chain data sharing and punish companies that stop working with Chinese suppliers, supposedly because such breaks would damage entire supply chains.
Most chillingly, they invoke criminal liability for executives of companies that violate the far-reaching compliance and controls measures addressed by these decrees. It goes without saying that anyone or any company doing or looking to do business in China needs to understand the comprehensive reach of these mandates, and act appropriately.
China’s official message this year, as always, is that foreign investment is welcome, and needed. Increasingly, however, both U.S. and European companies and the Chambers of Commerce that represent them appear to be unconvinced that pronouncements from on high represent actual advances on the ground. As has always been the case with implementation of foreign investment in China, it often seems that despite the official rhetoric, those left to administer the policy haven’t gotten the memo.
Ultimately, there is a push and pull mechanism at work in Chinese policy. On the one hand, the most powerful man in China states unequivocally that the door is “wide open” to investments from the world.
On the other hand, factor in to that invitation the effects of the National Security Laws and the decrees, and even an excellent business case for investing in China may find ultimately the risk too high, and the potential costs too difficult to avoid. In the end, China’s message, whether it realizes it or not, is actually more nuanced than simply “come on in.” China’s message, as interpreted by foreign companies, is: “Come on in, but beware.”