China’s Stars Dim for Investors

COMMENTARY Asia

China’s Stars Dim for Investors

Jul 8, 2022 4 min read

Commentary By

Peter St Onge @profstonge

Visiting Fellow, Roe Institute for Economic Policy Studies

Gideon Fernald

Summer 2022 Member of the Young Leaders Program at The Heritage Foundation

Supporters of the East Turkistan National Awakening Movement rally in front of the White House on July 5, 2022 in Washington, D.C. Drew Angerer / Getty Images

Key Takeaways

President Xi Jinping is rapidly turning China into a bad gamble for Western investors and multinational corporations.

Numerous Western nations imposed sanctions on China for its ongoing genocide against Uyghur Muslims.

Companies owe it to shareholders to get out of China on their own terms before Xi forces them out on his.

By strangling the Chinese economy and crushing human rights, President Xi Jinping is rapidly turning China into a bad gamble for Western investors and multinational corporations.

China’s dictator has run into increasing, if carefully expressed, criticism from top-profile figures within the Chinese Communist Party—including Premier Li Keqiang—over Xi’s ideological struggle to promote state capitalism alongside his quixotic and increasingly troubled zero-COVID-19 policy.

Due to China’s increasingly difficult regulatory environment, UBS, the largest private investment bank in the world, has already dropped China’s gross domestic product growth rate estimate this year from 5.5% to 3.0%—hardly what the world thinks of as Chinese levels of growth. Li has publicly stated that this drop in the growth rate is unacceptable, especially as the economy hasn’t slowed this badly since 1990.  

Before Xi, China’s economic growth was much higher. China’s average annual GDP growth rate under Yang Shangkun (1988-1993) was 8.6%; under Jiang Zemin (1993-2002), it was 9.8%; and under Hu Jintao (2002-2012), it was 10.4%.

Yet Xi managed just 6.5% even before COVID-19, a growth rate more typical of Latin America than the world-dominating power Xi hopes China will become. In fact, China’s economic growth rate has been on a downward trend ever since Xi assumed his role as the general secretary of the Chinese Communist Party. It peaked at 7.9% in 2012 and declined every year as he ran down the relatively free-market economy he inherited, hitting just 2.3% growth in 2020.

The problem is Xi’s adherence to a state-dominated ideology rooted in Communist China’s founder Mao Zedong’s socialist vision, and this has led him to clash with top party officials such as Li and Vice Premier Liu He.

They have recently clashed on issues ranging from tech policy regulations to crackdowns on private education to capricious and brutal COVID-19 restrictions. Both the premier and vice premier have stated that they supported the development and public stock listings of technology companies, a rare frank rebuke to a sitting leader.

Xi continues to attack both human freedom and economic prosperity. This year, he’s been pressuring top leaders within the Chinese Communist Party to speed up regulations for technology companies to enable his authoritarian vision of a complete surveillance network over his people to protect his increasingly unpopular reign.

For example, China implemented a personal information protection law in 2021, which is a threat to technology companies currently operating within China. This led companies such as Microsoft to shut down its LinkedIn service there in the same year, citing compliance requirements.

LinkedIn’s shutdown brings an end to the last major Western social media site operating in China, as other major social media platforms such as Facebook, Twitter, Instagram, Snapchat, and WhatsApp have already been blocked within the country.

James Zimmerman, an American lawyer based in the Beijing office of law firm Perkins Coie LLP, stated that Chinese markets have become “less and less palatable for Western companies” due to the “reputational risks of operating in an environment with extreme content censorship, and tighter regulatory conditions.” In other words, dancing for authoritarian regimes that murder their own people apparently is bad for business.

Meanwhile, just this month, Xi doubled down on his zero-COVID-19 policy and implemented new lockdowns with mass testing drives in Shanghai and Beijing, just a week after numerous cities were finally breathing free after previous restrictions were eased. This has forced businesses to shut down and has been disrupting supply chains and has put Chinese jobs at risk.  

Xi’s authoritarianism is attracting increasing backlash overseas. Numerous Western nations, such as the United States, Canada, and those in the European Union, imposed sanctions on China for its ongoing genocide against Uyghur Muslims, among the largest internment of ethnic and religious minorities since World War II.

Forty-four countries, including the U.S., the U.K., and most of Western Europe, released a joint statement stating, “We will continue to stand together to shine a spotlight on China’s human rights violations. We stand united and call for justice for those suffering in Xinjiang.”

Meanwhile, China has even begun hunting down Uyghurs abroad, receiving help from countries such as Saudi Arabia, Egypt, and the United Arab Emirates to silence criticism of China’s genocidal policies toward Muslims.

Although China’s actions are both wicked and heartbreaking, it isn’t surprising given its past actions in Tibet and Inner Mongolia.

For many years, there has been an ongoing debate among multinational corporations about the ethics of doing business in China. That has become increasingly more contentious as China has sent over 1 million ethnic Uyghurs into forced labor camps.

Between Xi’s authoritarianism and his economic policies that are moving China toward a more centrally planned economy, doing business in China is no longer a question of trading morals for profits. Rather, it is increasingly clear that Xi is killing China’s golden goose, and multinationals need to accelerate moves to less risky, less immoral, and less ideologically hostile nations—whether Thailand, Mexico, or Kenya, or back home in the United States.

Xi’s adherence to Maoist socialism will continue to make the economic and human rights issues plaguing China only worse in the future, making it harder and harder for foreign firms to operate there. Companies owe it to shareholders to get out of China on their own terms before Xi forces them out on his.

This piece originally appeared in The Daily Signal

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