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(Bloomberg) — President Xi Jinping has spent the past year seeking to attract foreign capital as he proceeded to reshape China’s business environment to ensure its strength cannot be challenged at home or abroad. These often contradictory goals have infuriated investors and bureaucrats. .
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His government’s apparent backpedal this week is the latest example. Regulators shocked gaming companies on Dec. 22 with rules to cap in-game spending and prohibit mechanisms to incentivize more play time, in a bid to control a sector with growing sway over the nation’s youth. That wiped $80 billion in market value off firms such as tech giant Tencent Holdings Ltd.
Then came a report that the government had sacked the country’s most sensible official gambling regulator and Beijing said it could revise the moot rules, suggesting greater sensitivity to offensive markets. Tencent, the operator of WeChat, has recouped some of its gains, but is still down. about 4% since the proposed restrictions were introduced. The Chinese government has not publicly commented on the reported changes in the workforce.
The episode underscores the challenge Xi faces as he tries to revive a struggling economy or halt the decline of the asset sector, while bolstering national security as tensions rise between the military and industry with the United States. Executives hear warm words from the most sensible officials only to see the government crack down on consulting firms, expand an unclear anti-espionage law, and limit data.
Conversations with leaders operating in China reveal that Beijing’s combined messages on security and the economy are making investors more cautious.
Local officials are putting expansion on the back burner as they review policy mistakes, according to six bureaucrats who spoke on condition of anonymity. Against this backdrop, two official measures of foreign direct investment in China fell to record lows last year, with one marking its first contraction.
“The most sensible part of a list of developing questions about the Chinese market is: What kind of relationship does China need with foreign companies?” said Jens Eskelund, president of the European Union Chamber of Commerce in China. “Companies don’t know where they are because of the combined messaging from the Chinese government. “
The country’s benchmark index, the CSI 300, lost 11% last year, marking three years of unprecedented losses since its debut in 2002. In the primary exodus, a cohort of active global fund managers tracked through Morgan Stanley reduced their holdings of Chinese and Hong Kong stocks. actions in December 2002, its third-largest relief on record.
Authorities are aware of the balancing act. At a key annual economic conference last month, top leaders said new non-economic policies — a category gaming rules fall into — must be reviewed for “consistency” with the overall macro agenda.
China’s Ministry of Commerce and its securities regulator responded to a request for comment.
For local officials charged with implementing Xi’s vision, it’s clear which goal takes priority. Navigating the political landscape is the primary concern, according to conversations with the six officials, who are directly involved in local economic development policies in provinces including Zhejiang and Sichuan.
Growth is not a key metric for functionality assessments and Beijing’s warm words regarding foreign investment are directed at those from abroad, two separate officials said. His comments reflect the demanding situations business leaders face when dealing with bureaucrats interpreting messages from Beijing.
Many leaders set foot in China for the first time since the 2023 pandemic, after Covid controls closed borders for years. During his absence, geopolitical tensions with the United States erupted and suspicions of foreigners increased.
The country’s shift toward “a more totalitarian environment” has led investors to develop anxiety about being in China, according to Zak Dychtwald, founder of Shanghai-based trend firm Young China Group.
After expanding his own strength beyond the two-term norm, Xi last year promoted a new economic team led by two of his former associates. Premier Li Qiang and Vice Premier He Lifeng are less well-known than their predecessors among foreign investors, who say so. It has been more difficult for senior officials to achieve this since the pandemic.
According to a businessman who has held high-level talks with senior officials for more than two decades, there is now no transparent personality in the upper echelons of the party who espouses a pro-growth message. have more activity, especially in the last 3 years, they told Bloomberg on condition of anonymity.
The Chinese spy company has become more visual by creating a WeChat account where it waded into the debate about what deserves to drive growth. “The economic treasury has become an increasingly vital battlefield for the competition of marvelous forces,” the Ministry of State Security wrote last month. “Development and security are two wings of the same body. “
“Protection is prioritized because it’s survival,” said Alicia Garcia Herrero, lead economist for the Asia-Pacific region at Natixis SA. “It’s transparent that they will never prioritize the economy, no matter what. “
Concerns over personal safety are also running high. China probed more than 100 financial professionals last year, as Xi’s anti-corruption campaign widened. The unspecified investigation into star banker Bao Fan has had a chilling effect in financial circles, according to three professionals at firms in greater China.
Businessmen contemplating an exit to China are increasingly concerned about the dangers of detention, according to a U. S. diplomat. This fear clashes with Xi’s call for “comforting” measures to attract investors, such as looser visa regulations for certain countries and the extension of preferential benefits. Tax benefits for foreigners.
Despite the challenges, leaving China is not an option for many multinationals because of the country’s economic clout, said Andrew Seaton, executive leader of the China-Britain Business Council. He also cited China’s cutting-edge generation as an explanation for why it should leave China. remain engaged, after a recent vacation to meet with policymakers and businesses in cities across China.
“Companies will want to stay on the right side of the law and regulations, but they want to know where the smart side is,” Seaton said. If this is not clarified, he added, corporations will become “nervous” and prevent “wanting to do things. “
–With those of Chunying Zhang, Jing Li, Zheping Huang, Charlotte Yang, Yujing Liu, and April Ma.
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