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Beijing's Self-Defeating Strategy

Walter Russell Mead

The basis of China’s integration into the world is business, but increasingly, China’s own economic difficulties and the efforts of the government to stabilize the situation at home are undercutting the foundations of China’s international position. The WSJ reports:

The European Union Chamber of Commerce in China, a trade group representing over 1,600 European companies operating in the world’s second-largest economy, said in an annual business confidence survey that the environment is “increasingly hostile” toward foreign companies and “perpetually tilted” in favor of domestic players.

Pessimism among European companies operating in China reached an all-time high, it said, with 31% of respondents bearish about the profit outlook, up 8 percentage points compared with 2015 levels. And 70% said they felt significantly less welcome in China than in years past, up 7 percentage points over 2015. Particularly negative in their outlook: the machinery, information technology, telecommunications and chemical industries.

The results mirror the findings of an American Chamber of Commerce in China survey in January in which 77% of companies said they felt less welcome now than a year ago, compared with 47% in 2015 and 44% in 2014.

At a time of great political friction — when the opposition of China’s neighbors to Beijing’s activities in the South China Sea dominates international meetings throughout Asia, China should ideally be reaching out to its friends in the rest of the world—primarily, the business community that is heavily invested in China and sees China as a big part of the future. But the opposite seems to be happening. Theft of intellectual property continues to be a major concern of foreign companies operating in China; in addition, transparency and the rule of law both seem to be on the wane as, according to reports, foreign firms feel less and less fairly treated. Favoritism of homegrown companies, partly no doubt a consequence of the nationalist feelings that the Xi government is encouraging, and partly as a consequence of actions being taken to protect jobs and local interests in difficult economic times, is increasing to the point where the foreign business community is openly complaining.

This has consequences for China’s international position. Chinese authorities now seem to think that it’s more important to support local interests than to keep foreign firms happy—one more piece of information pointing to the difficulties of China’s current situation. The slowing economy and the massive over-investment that the slowdown has revealed look more and more to be part of the most serious domestic trouble China has faced since the Cultural Revolution.

That’s not a good thing for anybody—for the Chinese people trying to gain access to better lives, for foreign firms trying to operate in a complex situation, for Chinese authorities trying to keep their country on a steady course, or for foreign governments who may be faced with an increasingly unpredictable Chinese foreign policy.

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