China’s President Xi was in San Francisco last week to meet with US President Biden, to speak at the Asia Pacific Economic Cooperation summit, and to pitch US corporate leaders on his pro-business attitude.
Xi’s Pro Business Performance
Xi was at his most charming in his talk sponsored by the U.S.-China Business Council and the National Committee on U.S.-China Relations, as well as Apple’s Tim Cook, BlackRock’s CEO Larry Fink and Mastercard’s CEO Merit Janow.
He talked about the beauty of America and reminisced about his stay with a family in Iowa 40 years ago when he first visited the US. He smiled and joked throughout the talk, and made references to China’s interest in being “a partner and a friend” to the United States. He also cautioned against “a zero sum game, in which one wins at the expense of the other.” He highlighted an initiative to invite 50,000 American students to study in China as an important move to build relationships, and said, “We need to build more bridges and pave more roads for people-to-people exchanges, instead of erecting various obstacles and creating a chilling effect.”
Xi also said “No matter how the international situation evolves, China’s resolve to foster a market-oriented, law-based and world-class business environment will not change.”
Other often-cited comments by Xi at the CEO summit included promising to protect foreign businesses operating in China, allowing foreign investment in a greater number of industries, and putting foreign investors on the same playing field as Chinese investors.
Xi himself described his plan as taking “heart warming measures” to reduce the barriers to foreign investment in China.
The amiable and peaceful Xi was so good that he drew a standing ovation from the 400 CEO’s and business leaders attending the talk.
Xi’s speech was big on rhetoric and short on action.
Glaringly absent from the speech was any discussion of The Law on Foreign Relations or the Anti-Espionage Law, both of which directly contradict the warm and fuzzy rhetoric from Xi.
The Law on Foreign Relations of the People’s Republic of China, passed by the Standing Committee of the National People’s Congress on 28 June 2023, is aimed at “safeguarding sovereignty and rejuvenating the nation.” The Law also grants the Chinese government expanded ability to counter “actions that impact China’s sovereignty and security.”
The wording of the law expands previous laws that allow Beijing to target any individual or business that back international sanctions, and states, “any organization or individual who commits acts that are detrimental to China’s national interests in violation of this Law and other applicable laws in the course of engaging in international exchanges shall be held accountable by law.”
The day after the law was published, the head of the Office of Foreign Affairs Wang Yi wrote an editorial in the People’s Daily explaining that China was confronting a growing number of unpredictable factors and should continuously expand its legal “toolbox” for “foreign struggles”. He wrote, “[We should] make full use of the Foreign Relations Law as a legal tool – through legislative, law enforcement, judicial and other means – to carry out our fight in response to acts of containment, interference, sanctions and destruction.”
The Foreign Relations law clearly warns any business that complies with sanctions against China that they could face prosecution if China believes the sanctions are counter to international law.
Even more concerning is the Anti-Espionage Law.
That Law, effective 1 July 2023, broadens the definition of espionage and allows state security to take action against espionage activity that is not considered a criminal act.
China has already moved against companies it claims are committing espionage under the new law.
In August, China fined the due diligence firm Mintz Group $1.5 million after a raid showed the company conducted “unapproved” investigations. The Chinese Government had closed the companies Beijing office in March and detained two local executives before issuing the fine.
Last April, even before the law was enacted, authorities raided the Shanghai offices of Bain & Co and questioned local leadership. It is now citing the law as legal justification for its actions.
In May, authorities raided Capvision offices and questioned employees, and later accused the firm of leaking classified information on the Communist Party and military operations. Then, in October, Beijing announced Capvision had “passed” its security checks. The company publicly thanked Beijing and promised it “will take the lead to defend the security bottom line in the development of the nation’s consulting industry,” widely seen as a statement directed by the Government of China.
Then in October, less than a month before Xi’s pro-business speech, Chinese officials arrested an executive and two former employees of WPP, one of the world’s largest advertising companies. The same month, security forces officially charged an executive of Astellas Pharma, a Japanese national, who it had arrested last March. Also in October, Chinese regulators initiated an audit of Foxconn, which makes iPhones in China, in a move widely seen as an effort to pressure Apple.
The Anti-Espionage Law raised serious concerns with the US. The Department of State issued a travel advisory for China, urging Americans to “Reconsider travel to Mainland China due to the arbitrary enforcement of local laws, including in relation to exit bans, and the risk of wrongful detentions.” And US commerce secretary Gina Raimondo warned China “that U.S. businesses might stop investing in their country without prompt action to address complaints about worsening conditions due to raids on firms, unexplained fines and unpredictable official behavior.”
Xi failed to mention any of that in his talk. Nor did he even mention that they exist.
Xi also didn’t mention the targeting of China’s own business leaders.
So far this year, more than a dozen Chinese business leaders have been detained or “gone missing.” Among the casualties are Zhou Zheng, the former deputy general manager of China’s largest state-owned food manufacturer and processor; Zhang Hongli, a former senior executive at the Industrial and Commercial Bank of China; and Zhao Bingxian, known as China’s Warren Buffet and CEO of Wohua Pharmaceuticals.
Some skeptics even questions Xi’s hearts-and-minds campaign to woo US students to China. The FBI has warned American students “don’t be a pawn.” The Bureau highlights the story of Glenn Duffie Shriver who was recruited by Chinese intelligence when he was in school in Shanghai. Could Xi’s invitation to American students also provide a new group of young individuals for China’s Ministry of State Security?
So, Is Xi’s Plea Sincere?
China is currently facing unprecedented economic difficulty, and foreign investment is a key part of the recovery plan. So, in that way, Xi is sincere and wants nothing more than US investment in the country.
But don’t get too starry-eyed over nice words. Beijing will continue to apply laws and regulation arbitrarily as it sees benefit or threat, and real change will remain elusive.
Until the Chinese Communist Party, and Xi, make substantial changes to the political philosophy and legal framework of the PRC, commit to true rule of law, and level the playing field, nothing will really change.
So take Xi’s “heartwarming measures” with a huge grain of salt, and protect your people, your intellectual property, your facilities, and your business in China.