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Mar 30, 2023
China Seeks to Reassure CEOs as Worries Swirl Over Potential War
(Bloomberg) -- Between China’s increased military aggression around Taiwan and reports that Beijing will supply Russia with weapons, the global business community could be forgiven for getting nervous about a possible war.
Premier Li Qiang, who became China’s No. 2 leader earlier this month, sought to dispel those fears on Thursday with some of China’s strongest words yet on its commitment to peace. In front of business and government leaders at the Boao Forum for Asia, an event often compared to the World Economic Forum in Davos, he called for nations to “firmly safeguard the hard-won peaceful environment.”
“In this uncertain world, the certainty China offers is an anchor for world peace and development,” Li said in one of his first major public appearances since becoming premier. “This is the case in the past and will remain so in the future.”
The speech underscored Beijing’s push to counter growing perceptions in boardrooms of foreign companies that China is becoming too risky in the face of increased geopolitical tensions. The US and its allies have imposed a range of sanctions and export controls on China, creating more headaches for businesses to operate in the world’s second-biggest economy.
Underscoring the risks are fears that China may one day act on threats to seize Taiwan by force. A recent survey from the American Chamber of Commerce in China shows the country is no longer one of the top three investment priorities for US firms, with almost half of them already in the market planning no new investments.
“Geopolitical risks and people’s fear of a potential war, or their concern that becomes a fat tail risk, are the biggest road block hindering economic and trade cooperation with China,” said Becky Liu, head of China macro strategy at Standard Chartered Plc. “It’s very hard to attract more foreign inflows or foreign collaboration just with the growth story.”
In his speech Thursday, Li maintained China’s economic recovery was picking up pace, saying March will likely produce a better outcome than the first two months of the year due to stronger consumption, investment and sentiment. A China that’s “stable and dedicated to development,” he said, would be a pillar for the world economy in a time of uncertainty.
“We do have the confidence and ability to sail the giant ship of the Chinese economy steadily ahead against all winds and waves, and make even greater contributions to the global economy,” he added.
China’s benchmark CSI300 Index of stocks closed 0.8% higher on Thursday, the biggest gain in a week. Net inflows into mainland shares via a trading link with Hong Kong exceeded 4.8 billion yuan ($697 million), which is also the most since Thursday last week. Chinese shares listed in Hong Kong rose 0.6%.
Economists are forecasting growth of 5.3% this year, up from just 3% in 2022. Morgan Stanley was even more bullish in a report Thursday, predicting 5.7% expansion for the year as the government restores confidence in private businesses with the return of Jack Ma to China and the swift announcement on Alibaba Group Holding Ltd.’s restructuring.
Foreign direct investment into China continued to climb through the pandemic despite an initial drop in 2020. In the first two months of this year, inbound investment was up 6.1% from a year earlier.
Still, geopolitical tensions between the US and China were top of mind among speakers at the four-day Boao Forum on the Chinese resort island of Hainan.
“Economic imperatives are being overshadowed by national security concerns,” Singapore Prime Minister Lee Hsien Loong said. “Countries are pursuing self reliance and resilience by onshoring, or friend-shoring, their supply chains.”
Next week will provide a key test for China, with Taiwan President Tsai Ing-wen set to meet with House Speaker Kevin McCarthy in the US around the same time Xi is expected to host French President Emmanuel Macron and European Commission President Ursula von der Leyen in Beijing. Last year, China conducted unprecedented military exercises around Taiwan after former House Speaker Nancy Pelosi visited the island.
China has recently been on a charm offensive to court overseas investment and bolster its diplomatic efforts to portray China as a responsible geopolitical actor. Xi has sought to emphasize his role as a neutral mediator, helping to broker a key agreement between Saudi Arabia and Iran and putting forward a blueprint for a cease-fire between Russia and Ukraine.
“China is rightfully proud of its tangible diplomatic accomplishment in brokering an agreement between Saudi Arabia and Iran,” said Drew Thompson, a visiting senior research fellow at the Lee Kuan Yew School of Public Policy in Singapore. “The peacemaker theme is credible and intended to resonate with a wary business community that has been whipsawed by policy reversals and unfulfilled promises.”
Still, he said, foreign firms in China have other problems to worry about — not least the unexpected policy shifts under Xi over the past five years. Stringent Covid controls led to logistical challenges and curbed consumer spending. A series of sweeping crackdowns on the technology, education and property industries damaged confidence over the future role of the private sector.
Foreign companies also must contend with security risks. Japan is seeking the release of an employee of drugmaker Astellas Pharma Inc. who was recently taken into custody by Chinese authorities, one of 17 Japanese citizens detained since 2015. Five local employees at the American due diligence firm Mintz Group were detained last week, according to the New York Times, with China’s Foreign Ministry saying the company “is suspected of engaging in unlawful business operations.”
While strained China-US relations rarely came up during the China Development Forum earlier this week, the mood at a closed-door panel was “somber,” said Scott Kennedy, a China specialist at the Center for Strategic & International Studies.
At the session, which didn’t include Li or other senior officials, some Chinese participants complained about “a reflexive American opposition to China’s success,” while US participants expressed concern over an unintentional crisis erupting, Kennedy said.
Li on Thursday repeated China’s usual criticisms of the US without mentioning the country directly, calling on the world to avoid a new Cold War and arguing against protectionism.
“Chaos and conflicts must not happen in Asia,” he said. “Otherwise the future of Asia would be lost.”
©2023 Bloomberg L.P.
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