Welcome to Foreign Policy’s China Brief.
The highlights this week: Changes to China’s anti-espionage law threaten to scare off foreign investors, Chinese President Xi Jinping and Ukrainian President Volodymyr Zelensky connect on a long-awaited call, and U.S. National Security Advisor Jake Sullivan lays out a “de-risking and diversifying” approach to China policy.
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The broadening of China’s anti-espionage law last Wednesday has prompted a key database of Chinese financial information to largely cut off foreign firms. The move follows a recent pattern of Beijing blocking access to critical business data, from patents to local yearbooks, as well as a series of raids on foreign firms—particularly those doing due diligence work. Combined with other recent developments, this is bad news for foreign investment in China.
Last week’s amendments also expand the range of available legal excuses to arrest foreigners in the country. A couple of prominent cases predate the changes—the detention of Australian journalist Cheng Lei and the recent arrest of Japanese executive Hiroshi Nishiyama—and that number may now grow. Meanwhile, China has increased its use of exit bans, deployed primarily against Chinese citizens but sometimes against foreign businesspeople.
The database restrictions are part of a wider campaign to remove once-available government data from the internet. China has cut access to online sources including decisions from court cases and procurement documents. Other resources, such as the China National Knowledge Infrastructure database, are now rendered off-limits to foreigners.
In some cases where data remains available to Chinese citizens, it’s possible to access it from abroad using a VPN and a borrowed ID number—but that puts the holder of the ID card at risk. Much of the information is simply gone.
The recent moves raise concerns for foreign businesses and investors in China. Reliable information has always come at a premium, but until recently corporate transparency was a rare bright spot in the country’s data landscape. For example, thanks to registries and relatively straightforward rules, working out company ownership was easier in China than in deliberately obscure jurisdictions elsewhere in the world. (This kind of data facilitated the remarkable reporting on Chinese President Xi Jinping’s and others’ family wealth.)
So why is China undertaking such aggressive measures even as it tries to woo back investors? Although the Chinese government is increasingly authoritarian and subject to Xi’s whims, it can also contradict itself. The prime movers for foreign investment are currently cash-strapped and debt-ridden local governments hoping to boost tax revenue and GDP figures. Their interests may conflict with those of state security agencies.
Provincial governments are powerful economic actors, especially in places such as Shanghai and Guangdong. But they can do little to influence the security agencies driving the supposed anti-espionage measures, especially the Ministry of State Security. Xi’s campaign of control—and his own political power—depends on his ability to deploy those agencies, and objecting to their actions is increasingly risky. The security agencies have no reason to care about economic growth, and local governments hold no sway over them.
The instinct to conceal information is built into the Chinese political system. However, in the early 2000s, the central government began a push for so-called e-governance. At the time, Beijing sought to force relative openness upon local governments to help break up corruption and rebuild officials’ reputation to one of serving the people. At the same time, the technology boom in China created a variety of companies that could scrape data sources and repackage the information in convenient form.
A few factors have reversed this trend. First, China’s top leadership and security agencies likely blame foreign influence for last year’s protests against the zero-COVID-19 policy, and especially for the few anti-Xi protests that accompanied them. It’s much easier to scapegoat fictitious foreign “black hands” than to address failed policies at home; that pattern has been seen after nearly every major protest against the Chinese Communist Party, from the 1976 protests in Tiananmen Square that helped end the Cultural Revolution to the 2019 uprising in Hong Kong.
The targeted U.S. campaign against China’s economy has also led some Chinese officials to try to make that targeting more difficult. After all, the less the United States can find out about the Chinese economy, the less effective its actions will be. Furthermore, a measure of pride is involved: When the Chinese economy was growing at record rates, the country was eager to boast about it. If the numbers are dire or even unimpressive, that increases the government’s desire to cover them up.
Finally, the use of government data by reporters and academics to investigate issues from China’s crimes against humanity in Xinjiang to its salami-slicing tactics on its border with Bhutan have made Beijing increasingly wary about sharing information. In the last four years, China has largely driven out foreign reporters through visa restrictions, harassment campaigns, and police threats, while doubling down on surveillance, especially in Xinjiang. It has become tougher to make personal contacts, and sources are less willing to talk out of justified fear.
China’s latest moves to limit online access to information make the already difficult job of finding out what’s really going on inside the country even more difficult. And while that may soothe official paranoia, it’s only likely to further alienate businesses and investors putting real money on the line.
Xi-Zelensky call. The long-awaited call between Xi and Ukrainian President Volodymyr Zelensky finally materialized this week. Xi promised that China would appoint a special envoy to aid in potential Russia-Ukraine peace talks, but little else of substance emerged from the conversation. The recent brouhaha over the Chinese ambassador to France’s diplomatic blunder—where he seemed to question the sovereignty of post-Soviet states—may have pushed Xi to make contact.
China’s credibility as a peace broker between Ukraine and Russia is weak, since China has leaned toward the Russian side and continues to do so in domestic propaganda. One indication that Beijing could change its position—or at least dial down its bias—is that it signed on to a U.N. General Assembly resolution condemning Moscow’s aggression for the first time on Monday. But the resolution doesn’t require any action; several other states that had abstained from similar resolutions also signed on.
Sullivan promises “de-risking.” U.S. National Security Advisor Jake Sullivan laid out an approach to U.S.-Chinese relations focused on “de-risking and diversifying” rather than decoupling in a speech last week. I remain skeptical of the White House’s constant rebranding of its China policy (“great power competition,” “strategic competition,” “stiff competition”)—especially when it seems to be a way of talking around U.S.-China hostility. Behind closed doors, plenty of people in the Biden administration are still talking about decoupling.
Calling it de-risking aims to signal to both China and the European Union that there are limits to how far the United States will take these measures. Sullivan said explicitly that he borrowed the term from European Commission President Ursula von der Leyen, who used it in a March speech that was tough on China—by European standards. Although Europeans might hear that message, it’s unlikely that Beijing’s leadership will see it as anything other than U.S. obfuscation of Washington’s attempts at containment.
Manufacturing contracts, travel booms. After a strong start to the year, Chinese manufacturing contracted slightly in April, missing forecasts and undermining hopes of a continued post-COVID-19 boom. It’s unclear how much of this is a result of limited domestic demand versus slackening global demand; Chinese retail and services data in the next few weeks may help clarify the answer. The contraction may be good news for air quality: Some observers feared the manufacturing recovery would threaten China’s remarkable success in pollution reduction.
Meanwhile, domestic tourism has surged during the May 1 holiday week, with numbers reportedly up 20 percent compared to the same period in 2019. That’s especially good news for Macao, where the economy contracted by double digits last year under the weight of the zero-COVID-19 policy and a government anti-gambling campaign. (Contrary to Beijing’s hopes, tourists to Macao remain driven by the casino economy, not its theme parks or historical heritage.)
Real estate firm faces liquidation. Chinese developer Jiayuan International, once in the top 100 firms in China in terms of contracted sales, faces a Hong Kong court order to liquidate its assets to meet foreign creditors’ demands. The case is the third such victory for overseas creditors. The case is relatively insignificant in itself—the debts owed to the specific creditor are just $14.5 million—but it highlights that China’s junk bonds, which are closely linked to the real estate sector, are in distress.
There are much larger pending cases in the Hong Kong court system, including claims against perpetually troubled real-estate giant Evergrande Group, which is currently trying to win another breather by restructuring its overseas debt.
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