By Antonio Graceffo
China’s new foreign relations law intensifies Xi Jinping’s power and control over private sector companies.
The Foreign Relations Law came into effect on July 1. This new law increases government control, creates risk for foreign companies as they could be accused of espionage, and will restrict the country’s economic development at a time when its economy is slowing.
he Chinese Communist Party (CCP) claims that the purpose of the law is to “safeguard China’s national sovereignty, national security, and development interests, and uphold international fairness and justice.” The term “national sovereignty” generally refers to a possible invasion of Taiwan and is often used to vilify the United States or other nations that support or engage with the island nation. The law empowers Mr. Xi to act against entities that are “detrimental” to the interests of the CCP.
However, typical of Chinese law, these interests are not spelled out. Similar to the Counter-Espionage Law, which also came into effect in July, the ambiguity in the verbiage dramatically increases the risk for companies and people working in China as nearly any actions they take could be identified as a violation.
Article 32 of the Foreign Relations Law states that it applies to “foreign-related fields,” which suggests that the law may apply to companies and entities beyond China’s borders. Other Chinese laws, such as last year’s Data Security Law, also carry extraterritorial authority. It applies to data processing and storage activities the CCP deems a threat to national security or interests.
Mr. Xi has recently led a campaign against foreign consulting and auditing firms, accusing them of prying into state secrets. With tighter legislation, normal business activities like conducting market research could qualify as espionage. In China, all sorts of sectors, from agriculture to energy, are considered to be components of national security. This leaves foreign companies little room to operate without stepping into allegedly sensitive areas.
At the CCP’s 20th National Congress last October, Mr. Xi said he would prioritize national security over growth. Last month, he told the Party’s National Security Commission to prepare to meet the coming “complex and grave” national security threats.
While Mr. Xi is obsessing over national security, he is doubling down on his goal of supplanting the United States as the preeminent economic and military power. Furthermore, he is stressing the importance of socialism, Party leadership, and remaining true to “the guiding role of Marxism in the ideological domain.”
Clearly, Mr. Xi wants the CCP to exert even more control over the economy and rein in civil society, preempting any movement or action that might challenge his or the Party’s authority. He has even abandoned his oft-repeated phrase “strategic opportunity period” as the window of opportunity for foreign investment and economic expansion is closing, and a new era of security and militarization is beginning.
This restrictive legislation comes at a time when the Chinese economy is flagging. Manufacturing output is down, as are exports, consumption, and job creation. The major economic development of the past was driven by the liberalization of the economy and the support of the private sector.
Mr. Xi’s new security-related restrictions can only serve to impede economic growth. Beijing’s strategy over the past 30 years has been one of export-led growth highly dependent on foreign investment. As the economy weakens and tensions between the United States and China increase, investment is drying up. In the first quarter of the year, foreign direct investment (FDI) dropped 80 percent year-on-year. By the half-year mark, FDI use—the portion of the total foreign direct investment that has been effectively utilized or put into productive use—had fallen 2.7 percent.
Western consulting companies have been raided and shut down by the police while employees and managers have been investigated and even detained. The general perception among analysts is that doing business in China is becoming much riskier. Consequently, numerous firms are shifting their production out of China, with countless others considering doing so. For the first time in 20 years, Goldman Sachs predicts that net investment in China will be negative.
This article originally appeared in The Epoch Times on 8/6/2023
