“A confident, open, and willing-to-share China must be a huge force for world prosperity and stability,” Premier Li Qiang said at a recent international business summit. As top officials move to reassure anxious foreign investors, Li’s statement is true, but implementation is in doubt.
In recent months, Chinese investigators have detained employees of U.S. due-diligence firm Mintz Group, visited consultancy Bain & Company and suspended auditor Deloitte’s Beijing operations for three months. Security watchdogs have restricted overseas access to financial data providers like Wind Information, as well as academic database China National Knowledge Infrastructure. On top of that, a revised espionage law broadens the definition of spying to include transferring information pertaining to “national interests.”
In addition to worries that Americans will use corporate registries and the like to target economic sanctions, Chinese officials have become less willing to bend over backwards to attract foreign money and technology in general. The People’s Republic has moved up the manufacturing value chain, and there is plenty of capital at home: since 2018, mainland stock markets and Hong Kong have raised nearly $500 billion for local firms, per Dealogic, 12 times the value generated by Chinese listings in New York. Local banks loaned 3.9 trillion yuan ($560 billion) in March alone while corporations issued 328 billion yuan of bonds.
At the same time, there are signs that foreign direct investment flows are slowing and decaying in quality, per a Rhodium Group analysis. There’s been less inbound M&A and greenfield investment and official statistics are flattered by transactions between related affiliates and “round-trip” deals by Chinese companies – especially in 2021 when Chinese interest rates were relatively attractive. Corresponding data from Hong Kong and Singapore suggest FDI growth in China is flattening or falling outright.
It’s a risky time to take foreign cash lightly. The country’s financial system is inefficient, and frequently discriminates against private borrowers. FDI, which is less volatile than portfolio flows, compensates for this shortcoming, and for capital fleeing China. Official balance of payments data suggests some $91 billion may have snuck out of the country last year. More urgently, offshore investors could contribute to cleaning up distressed assets left by opaque local government financing vehicles - entities that Goldman Sachs analysts estimate owe over $8 trillion – but not if they can’t evaluate the assets, companies and people involved.
Given the sustained dominance of China’s supply chain throughout trade wars and pandemics, and the size and rising wealth of its consumer market, Beijing’s confidence in the country’s attractiveness as an investment destination is not baseless. But complacency is never a good look.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add chart.)
CONTEXT NEWS
Chinese financial data provider Wind Information has blocked some offshore users from accessing certain business and economic data as a result of new cybersecurity rules, Reuters reported on May 3 citing unnamed sources.
Affected data includes business registry details such as a company shareholding structure and its ultimate controller, as well as macroeconomic data like land sales in certain cities. Besides Wind, other Chinese data providers including company databases Qichacha and TianYanCha have stopped opening to offshore users, according to three of the sources.
Separately, Chinese police have visited U.S. management consultancy Bain & Company's office in Shanghai and questioned staff there, a company spokesperson said on April 26 without elaborating. Chinese authorities also raided the office of U.S. corporate due diligence firm Mintz Group in Beijing and detained five local staff, the company said on March 24.
