Foreign Direct Investment In China Dwindles Due To Industry Executive's Skepticism

China is facing challenges in attracting foreign investment to its struggling cities and provinces due to concerns about political risks and the inadequacy of current incentives compared to previous attractive offers. 

Local authorities, in their efforts to recover from economic difficulties caused by the pandemic and property crisis, have been actively seeking new sources of revenue, with foreign investment being highly desired. 

Premier Li Qiang announced China's readiness for business again in March, leading provinces and cities like Sichuan and Chaozhou to promote themselves internationally and invite investors to special events. 

However, industry executives and lobbyists from foreign countries note that the current incentives offered by local governments are not as appealing as those provided a decade ago when companies received subsidies, free land use, and a more predictable regulatory environment. 

The push to attract foreign investment contrasts with Beijing's stronger stance on supply chain dominance and President Xi Jinping's emphasis on national security. 

Foreign direct investment denominated in dollars declined by 5.6 per cent in January to May, even after the strict COVID restrictions were lifted, as China's post-pandemic economic recovery stumbled. 

Despite the charm offensive, foreign executives remain skeptical, believing that financial support might not be forthcoming, and they may have to self-finance projects and deal with bureaucratic hurdles. 

In the past, companies were offered tax waivers and land deals to encourage investment, but recent offers from Chinese authorities have been less lucrative, like a deal on personal income tax for top executives. 

Local authorities face a delicate balancing act between attracting foreign investment and addressing concerns about President Xi's security policies, as many foreign companies worry about changes in the business environment and the government's tight control over business operations. 

While there is a desire to attract foreign investment, analysts believe that local officials remain loyal to the Chinese Communist Party's directives, which might hinder a truly business-friendly approach. 

Foreign investors are uncertain about the situation and view local authorities as part of the larger Chinese system, leading to doubts about the long-term feasibility of their investments in the country.