Foreign funding at a minimum, Beijing tries to block flight of capital
by John Ai

New direct investments have reached their lowest level since 1998. What weighs heavily - in addition to the deterioration of the economic situation - is the recently introduced law on espionage which fuels denunciations and has already led to several arrests. Analysts skeptical of Beijing''s new measures possible success.

Beijing (AsiaNews) - The process of progressive abandonment of the Chinese market by global financial investors is accelerating.

China's new foreign direct investment plunged 87% in the second quarter, the lowest figure since 1998. China's direct investment liabilities, which measure foreign investment, fell, according to official data. at its lowest level in 25 years.

That is why China's State Council, which represents the central government, issued new guidelines over the weekend in a bid to boost foreign investment.

The document released by China's State Council contains 24 guidelines according to which the authorities should provide support and tax incentives to companies investing overseas, such as income tax exemption for reinvesting profits in China.

The document also promises to increase the protection of the rights and interests, including the intellectual property of foreign companies operating in the country.

According to the document, foreign companies are encouraged to set up R&D centers in China and undertake major R&D projects in China.

US President Biden last week announced restrictions on US investment in Chinese entities in three technology areas, namely semiconductors and microelectronics, quantum computing technologies and some artificial intelligence systems.

Details of the legislation will be released later to clarify the prohibited areas, however the measures have already infuriated Beijing.

Executives and staff members of foreign companies have been promised the ability to enter and exit the country, and the same goes for applying for permanent residency in China.

Additionally, the document promises that regulators will decrease the rate and frequency of company inspections, resulting in lower credit risk.

China's State Council has ordered local governments to implement the provisions as soon as possible, to improve the confidence of foreign investors.

Regulation by Beijing authorities in technology industries and private enterprises, as well as geopolitical tensions, have weakened returns for international investors. In the first half of this year, 62% of hedge funds suffered losses; in the same period, only five new ones were created, while 18 were liquidated.

However, the latest measures to keep foreign investors in China contradict the anti-espionage law that went into effect on July 1 last year. The broadening of the definition of espionage and national security activities has discouraged some foreign companies in China, ready to retreat.

Foreign companies are aware that broad and unclear definitions of espionage can lead to uncertainties and risks of punishment, even arbitrary detention. In recent months, Chinese police raided the office of US consulting firm Bain & Company in Shanghai.

Five employees of the Mintz Group, a company operating in the Investigative Due Diligence (IDD) sector, have been arrested. A Japanese executive of Astellas Pharma has been jailed for espionage.

China's Minister of State Security launched a WeChat account in August, urging citizens to report spies and announcing that whistleblowers would be rewarded.

A survey by the European Union Chamber of Commerce in China showed that European companies' confidence in the country's business environment has plummeted under the growing influence of repressive regulation and political meddling.

About 75% of companies are considering readjusting their supply chain strategy and 12% of them have already moved some activities out of China.