Multinational Corporations in China Face Dilemma Amid Growing Risks in 2024

Multinational corporations in China are grappling with a critical decision in 2024 – whether to continue operating in the country or reconsider their presence due to escalating risks associated with doing business in the region.

The heightened scrutiny of Western firms by Beijing over the past year has sparked concerns among international investors, particularly against the backdrop of growing tensions between the United States and China. The term “de-risking” has emerged as a defining strategy for enterprises navigating the uncertain business landscape, VOA reported.

Anna Ashton, Director of the China Corporate Affairs Program at the Eurasia Group, a global political risk consulting firm, highlighted the evolving situation in a phone interview with VOA Mandarin. She noted, “National security concerns linked to the changing geopolitical landscape and tensions with the United States have prompted Beijing to alter some of the rules for doing business in ways that make the environment less certain for foreign companies.”

Ashton further explained that the slower-than-expected return to normal growth post the zero-COVID policies, combined with geopolitical tensions and a sluggish Chinese economy, has contributed to making the business environment challenging for foreign companies.

The World Bank’s semiannual regional forecast on December 14 added to the concerns. It projected a slowdown in China’s growth rate from 5.2% in the current year to 4.5% in 2024, down from the 4.8% expected in April, and 4.3% in 2025. The report cautioned that the outlook is subject to considerable downside risks.

Chinese Premier Li Qiang acknowledged the complex and severe internal and external environment facing the country’s development, emphasizing the need to overcome difficulties and challenges for economic recovery.

While Beijing continues to value foreign investment and actively seeks to attract foreign firms, there is a noticeable shift towards prioritizing national security. The recently revised Counter-Espionage Law, effective from July 1, has raised concerns. The vague definition of espionage under this law, as noted by the U.S. National Counterintelligence and Security Center, potentially grants the Chinese government more access to and control over corporate data.

Elisabeth Braw, a columnist at Foreign Policy, pointed out the increasing difficulty for Western businesses in China, citing unpredictability as a significant problem. She noted that any Western company could be targeted by government crackdowns related to the espionage legislation, and there is a risk of using Western companies as proxy targets in retaliation against Western governments.

Several companies have responded to the changing environment by altering their plans. Forrester Research closed its China office in May, and in November 2023, Vanguard Group and Gallup announced the shutdown of their operations and withdrawal from China. Even companies highly dependent on China’s manufacturing sector, like Apple, are diversifying production lines to countries such as India and Vietnam.

Data from China’s State Administration of Foreign Exchange in early November revealed a concerning trend, with foreign direct investments registering negative $11.8 billion in the third quarter – the first negative figure since recordkeeping began in 1998. As multinational corporations weigh their options, the business landscape in China remains uncertain, raising questions about the future of foreign investments in the region.