The Chinese Communist regime seems unable to fundamentally break free from its own predicament. The CCP has always openly claimed that it needs foreign investment to provide the funds necessary for China’s economic growth and to introduce much-needed commercial and technological expertise. Therefore, CCP decision-makers encourage companies from around the world to establish operations in China or invest in various ways. However, the CCP’s own actions hinder these investment flows. These obstacles include raids by the CCP police on foreign companies’ facilities in China, often under weak, suspicious pretexts or veiled political motives. Undoubtedly, human rights advocates worldwide will have much to say about these practices. From an economic perspective, this article focuses on the potential economic backlash of these actions by the CCP.
A recent incident occurred at a Foxconn factory in Zhengzhou, Henan Province. This Taiwanese-owned company produces numerous contract products for Apple, an American company. This Foxconn factory in mainland China plays a crucial role in Apple’s global supply chain for iPhones, earning it the nickname “iPhone City.” Just last month, the CCP authorities sent police to the factory and arrested four employees on vague charges. While these arrests seemingly did not affect the normal operations of the Foxconn factory, the threats posed by increasingly serious incidents could still have a significant impact on the business decisions of foreign companies investing under CCP rule.
The Taiwanese government takes this matter seriously. Taiwan’s Mainland Affairs Council considers these arrests and charges to be “quite strange.” As a result, Taipei issued a warning in June this year advising its citizens to avoid all unnecessary travel to mainland China. For obvious reasons, Taiwan is particularly sensitive to such actions.
Last year, Foxconn’s business in China faced unwarranted investigations by the CCP authorities, with the investigations based on similarly vague grounds but undoubtedly related to the situation after Foxconn’s founder, Terry Gou, failed in his bid for the presidency of Taiwan. More worrying is the CCP regime’s declaration of targeting Taiwanese citizens deemed as “die-hard Taiwan independence elements.” The CCP government asserts that such “illegal” acts could be punishable by death.
Against this backdrop, Taiwanese companies have begun to relax their once-close ties with mainland Chinese companies, which is not surprising. Since 2010, investment flows from Taiwan to mainland China have been decreasing. In just the past year, these investment flows decreased by nearly 40% compared to 2022. Taiwanese investment in mainland China last year was only $4.17 billion, less than a third of the amount in 2018.
These substantial funds not flowing into mainland China are instead redirected to Southeast Asia, particularly to countries such as Singapore, Vietnam, Indonesia, Malaysia, and Thailand. These countries currently receive about 40% of Taiwan’s outward investment, exceeding the funds flowing into mainland China. Specifically, Taiwanese investment in Vietnam has quadrupled, especially in the high-tech electronics sector highly valued by the CCP regime.
Not only are Taiwanese companies sensitive to the CCP’s high-pressure policies, but Beijing’s coercive behavior also affects the decision-making of many companies worldwide. After all, even influential global companies like Apple are also vulnerable to the negative repercussions of incidents such as the Foxconn arrests in Zhengzhou.
In April last year, the CCP authorities raided three U.S. consulting firms: Bain & Company, Mintz Group, and Capvision. The CCP authorities have long been dissatisfied with these companies collecting Chinese business and financial information. They detained two employees of Mintz Group and ultimately fined the company around $1.5 million for allegedly collecting data unlawfully. As these companies collect information to provide advice on investing in China for U.S. and other global companies, the CCP’s hindering actions directly conflict with its need for foreign capital inflows, unless Beijing’s dreamers believe that investors should blindly expose their funds to risk.
Certainly, not only American and Taiwanese companies are affected. In October 2023, the CCP authorities arrested an executive from Japan’s Astellas Pharma, Inc. on espionage charges, but released them in March this year. The CCP authorities also detained an executive from WPP Group, one of the world’s largest advertising companies headquartered in London, along with two former employees. Beijing authorities held an Australian journalist for three years. Behind some of these arrests may lie CCP laws or national security reasons that the outside world cannot challenge. If that’s the case, the CCP government hardly needs to take any action to justify the legality and legitimacy of these arrests. Meanwhile, the prevalent sense of harassment among foreign companies has deprived the Chinese economy of much-needed foreign capital inflows.
Indeed, the shift in foreign investment sentiment is most evident in trade data. For example, in 2023, imports of smartphones from China to the United States decreased by about 10%, while imports of laptops fell by 30%. These are the most recent figures with complete statistics. In contrast, although starting from a low base, U.S. imports from India and Vietnam both quadrupled. European data is currently incomplete, but reports from Berlin show that German imports from China dropped by about 13% over the past year. Early reports suggest that while Sino-German trade relations have evolved over the long term, the United States may have already surpassed China as a destination for German exports. Data on Japan and South Korea remains limited, but the declining trends in exports to China likely reflect their reluctance to continue using Chinese assembly facilities, which have been the primary channels for Japanese and South Korean exports to China.
With all these events compounding, one cannot help but ask: why would the CCP regime sacrifice its pressing economic interests for such high-handedness? The CCP authorities surely are not oblivious to the negative impact of these raids and charges. So, the most fundamental question may be: can the CCP still save itself now?