In Beijing, China, on July 12, 2023, a man strolls through the Central Business District on a rainy day. The country is currently facing challenges in attracting foreign investment to its financially struggling cities and provinces. Foreign firms remain cautious due to political risks, and the new incentives offered by local authorities are not as enticing as before.
In an attempt to find new revenue sources, local authorities have been actively seeking foreign investment. Provinces and cities, such as Sichuan and Chaozhou, have sent delegations worldwide to pitch and invite investors. However, industry executives and lobbyists reveal that the current incentives offered by local governments are not as appealing as they once were. Companies used to receive subsidies, free land use, and a more predictable regulatory environment.
Despite the efforts made by China to engage with the international community, there is still work to be done to regain interest from foreign investors. While there has been a charm offensive, it contradicts Beijing’s assertive approach towards supply chain dominance and national security.
Foreign direct investment in China has declined by 5.6% from the same period last year, even after the lifting of COVID restrictions. The Ministry of Commerce has not provided any comments on the matter. According to Noah Fraser, managing director of the Canada China Business Council, municipal, provincial, and regional authorities have engaged in a charm offensive, but they lack the financial capital to support investments. Instead, they focus on reducing red tape and fostering relationships.
Several Western company executives express their skepticism after discussions with local authorities. The offered incentives are not significant enough to influence their investment or operational decisions. In the past, companies received tax waivers and land deals, but now they are only presented with minor benefits, such as personal income tax reductions.
Local authorities face a delicate balancing act between attracting foreign investment and dealing with questions about President Xi Jinping’s security policies. Foreign firms have raised concerns about the changing business environment in China, including crackdowns on consultancies and new data and anti-espionage laws. Deviation from Chinese Communist Party thinking on business is not tolerated, forcing foreign firms to rethink their approach to China.
Despite Premier Li Qiang’s intention to bring back inbound investment, concerns remain about potential lockdowns and unfriendly business policies. Local governments are seen as part of the system, with limited ability to reassure foreign investors.
In summary, China is facing challenges in reviving foreign investment due to political risks and less appealing incentives. Local authorities are striving to attract investment but lack the financial resources of the past. Foreign firms have expressed concerns about the changing business environment and the lack of flexibility in China’s Communist Party thinking.
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