Doing Business in China: Increasing Challenges and New Restrictions
The Biden Administration Imposes Restrictions on Investing in China
The Biden administration is set to announce new restrictions on investing in China as part of its efforts to prevent Beijing from accessing advanced technologies that may be used for military purposes. These measures pose additional challenges for the world’s second-largest economy as it confronts a post-pandemic slowdown. Notably, a major Western law firm recently revealed its decision to leave China.
Focus on High-Tech Sectors
The new restrictions will primarily impact high-tech sectors. Private equity and venture capital firms will be prohibited from investing in Chinese industries such as quantum computing, artificial intelligence, and advanced semiconductors, according to sources familiar with the matter.
China’s Economic Squeeze
China’s economy is already under pressure. Official data released today indicates that the country experienced deflation last month, immediately following a report of a significant decline in trade – the most severe since the beginning of the pandemic.
Challenges for Businesses
Many businesses that heavily rely on Chinese operations are now caught in the middle. Dentons, the largest Western law firm in China, announced its separation from Dacheng, its unit there. Operating in China has become more difficult due to the country’s new counterespionage law. The law prohibits the transfer of any information related to national security, without specifying which data falls under this category. It also grants authorities access to data, electronic devices, personal property, and allows them to prevent individuals from leaving the country.
Widespread Issues and Diverging Standards
These challenges are prevalent across various industries. “Standards are diverging between China and Western economies,” explained Eswar Prasad, a trade policy professor at Cornell and former head of the I.M.F.’s China division. China’s limited openness to foreign businesses has contributed to this divergence.
China’s Importance and Increasing Difficulty
Despite the difficulties, China remains a major economy, and foreign businesses will continue to operate there. However, doing so has become “quite a fraught proposition,” according to Prasad.