US may stop investing in China

SHANGHAI: Commerce Secretary Gina Raimondo on Wednesday said she warned Chinese leaders that US businesses might stop investing in their country without prompt action to address complaints about worsening conditions due to raids on firms, unexplained fines and unpredictable official behavior.

Raimondo’s comments add to pressure on Chinese leader Xi Jinping’s government, which is trying to revive investor interest and reverse an economic slump. Business groups say confidence among foreign companies is at an all-time low. Official figures show foreign investment plunged in the latest quarter.

Raimondo visited Beijing as part of US efforts to restore relations that plummeted to their lowest level in decades due to disputes about technology, security, Taiwan and other issues. She called her meetings with China’s No. 2 leader, Premier Li Qiang, and other officials “very productive” but said she “didn’t pull any punches” in conveying business complaints.

Raimondo said chief executive officers (CEOs) ahead of her trip told her they face increased pressure from Beijing’s expansion of an anti-spying law this year, raids on some firms, tighter controls on data and lack of information about rule changes.

“My point was US business needs to see some action taken to address these issues. Otherwise, they will deem it as just too risky and, as I said, uninvestable,” Raimondo told reporters at a Boeing Co. joint venture in Shanghai’s eastern district of Pudong.

Foreign direct investment in China fell 89 percent from a year earlier in the three months ending in June, according to official data. Most investment is believed to be brought into the country by Chinese companies disguised as foreign money to get tax breaks and other incentives, but business groups have warned foreign companies are withholding new spending until their status is clearer.

“Patience is wearing thin,” Raimondo said. She said conditions for companies that have complained for years about technology theft and official favoritism toward Chinese competitors are “becoming in some ways even tougher.” Economic growth slid to 0.8 percent compared with the previous quarter in the three months ending in June from the January-March period’s 2.2 percent. That is equal to an annual rate of 3.2 percent, which would be among China’s weakest in decades.

Despite that, Li has expressed confidence the economy can hit the ruling party’s annual growth target of “about 5 percent.” Raimondo said she welcomed moves such as the ruling party’s announcement of a 24-point plan to improve conditions for entrepreneurs. She said the party secretary for Shanghai, Chen Jining, told her on Wednesday the city was considering creating a hotline to receive business complaints.

“We have to see the situation on the ground match the rhetoric,” Raimondo said.

Raimondo’s visit produced the most substantial results of a series of trips to Beijing over the past three months by US officials including Secretary of State Antony Blinken in June and Treasury Secretary Janet Yellen last month.

The two governments announced on Monday they would form two groups to reduce trade tension by sharing information about US export controls on technology that irritate Beijing and discuss other commercial disputes. They also agreed to have officials meet to discuss protection of trade secrets and to hold a “travel and tourism summit.” The group held its first meeting on Tuesday. Raimondo said they would meet several more times. She said the meetings are intended to provide information and won’t result in changes to US export controls.

“We were able to clarify in the first meeting that we’re not targeting China,” Raimondo said. “We’re targeting action and behavior which undermine US national security, and we sought to begin clarifying our procedures.” Export controls “will continue to be the area of the most disagreement, but communication can only help,” Raimondo said.

Conditions for foreign companies have worsened following the expansion of an anti-spying law that some say leaves them unclear about what consumer and other information they can gather. A research firm, Mintz Group, was fined $1.5 million this month on charges it improperly gathered data. China ordered makers of some data equipment to stop using products from the biggest US maker of memory chips, Micron Inc., on security grounds.

The secretary said she raised the status of Visa and Mastercard as an example of the need to treat each other’s companies the same way. The credit card issuers have waited for years for approval of applications to operate in China, while Chinese payment services Alipay and UnionPay operate freely in the United States.

“We did not resolve anything, but I thought that it was important to put the issue on the table,” Raimondo said. “And I did feel heard.” In a phone call later with reporters, Raimondo said she mentioned to Chinese officials that her own emails were stolen by computer hackers. She said nothing about the source, but The Washington Post reported in July that she and Blinken were targets of state-backed Chinese hackers.

“I mentioned that as an action that erodes trust,” she said.