THe arranges The numbers of foreign businessmen in Shanghai are greatly depleted these days. And those who stay closely monitor the comings and goings of multinational executives. So all eyes were on the Bond Summit, a globally oriented economic and financial forum held in the city from September 22-24. In previous years he brought the forum a-List of CEOs from around the world. The latest edition, the first since China lifted its strict COVID-19 restrictions and declared itself open for business, was expected to attract high-profile crowds once again.
not like that. Nearly ten months later, President Xi Jinping’s grand reopening after his complete failure to eliminate the coronavirus was a major disappointment. Foreign investors believe that 2022, when the quarantine has thrown China into a deep freeze, will be the bottom for bad feelings. Instead, the Chinese economy is weakening, and cross-border investment flows have weakened. The authorities raided foreign companies. On September 25th Financial Times It was reported that Charles Wang Zhonghe, head of China investment banking at Nomura International Bank, a Japanese bank, has been barred from leaving China. Many foreign investors are skipping trips and postponing their investment plans.
Those who have come to Beijing and Shanghai this year say the damage done by eliminating the coronavirus is clear and tangible. Some of these, such as the deterioration of hotel workers’ English skills, are superficial. Other problems cut to the bone. Local staff have been prevented from traveling abroad for years, and thus from mingling with a steady stream of colleagues, engineers and scientists. China’s hordes of well-trained white-collar workers appear less prepared to engage with the rest of the world than they did a few years ago, visitors say.
Communications between the government and foreign investors have also become more complex. Local officials are less willing to have open discussions with visiting investors. Most inquiries from foreigners receive boilerplate responses. This is particularly unhelpful at a time when staggeringly complex new compliance rules for things like data transfer pose significant legal risks to companies.
Perhaps as a result, few foreigners bother to come. Domestic travel remains shockingly depressed. The number of passengers entering the country on international flights in the first half of the year fell by more than three-quarters compared to the same period in 2019. As of July, the number was still just over 50%. Western tourists have almost completely disappeared from China this year, depriving the country of beneficial personal connections. Mass travel from America fell by about 99% in the second quarter of the year compared to 2019.
Business travel, which came to an almost complete halt in 2022 as China issued few visas and required up to three weeks of quarantine, is well below Chinese expectations and is only increasing at a slow pace. “The lack of trade contacts and civic exchanges between China and the outside world may have more profound implications for China’s economic growth potential in the years ahead,” Harrington Zhang and his Nomura colleagues warn in a recent report (published before their colleague’s predicament came to light). “Foreign direct investment has already collapsed to $4.9 billion in the second quarter, down 94% from the same period in 2021. Only $4.4 billion of foreign investment capital flowed into China in the first half of the year, down from about $55 billion. Dollars to all companies.2021, according to PitchBook, the data provider (see chart).
And those who stuck with it during the punishing zero years of Covid-19 are reevaluating their commitment to China. According to a survey of American businesses in the country by the U.S. Chamber of Commerce, released on September 19, only 68% were profitable last year. Only 52% believe this year will be better. Almost as many were optimistic about the next five years, a record low. About 40% of companies say they are moving their investments elsewhere or plan to do so.
The chamber noted, “2023 was supposed to be the year in which investor confidence and optimism return.” But she added grimly that this recovery simply “did not happen.” Instead, business sentiment continued to deteriorate. Simply opening the door to the open world didn’t work. On the other hand, the window for meaningful re-engagement with the West is beginning to narrow. ■