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China’s ‘extreme’ national security focus a drag on business, US trade group says

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China should dial down its “extreme” emphasis on national security and keep foreign companies in mind when crafting industrial policy to give them the incentive to expand their presence in its market, a US business lobby has said.

In a 600-page document featuring numerous policy reviews and recommendations, the American Chamber of Commerce in China called for the country to allow foreign organisations to compete on a level playing field with domestic firms and clarify how the country’s national security laws apply to business.

“As much as China wants to attract more foreign investment, there are forces within the government which lean in the direction of impeding foreign investment because of an extreme emphasis on national security,” Lester Ross, chair of the chamber’s policy committee, said on Tuesday as its annual white paper was released.

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Beijing raids offices of consulting firm Capvision in widening crackdown over national security

Beijing raids offices of consulting firm Capvision in widening crackdown over national security

Beijing’s revised state secrets law widening the scope of restricted sensitive information to “work secrets” will come into force on May 1, following an anti-espionage law in effect since last April that has often been named by foreign chambers as a deterrent to business interests.

“This spills over to work security or occupational security,” Ross said. “We have a law, we do not yet have regulations defining what a work secret is … it’s a serious problem.”

China’s far-reaching laws on national security have been implemented while the government has also pushed policies to drive foreign investment, part of an overall effort to stimulate growth and restore trust in the country’s economic prospects.

However, in the chamber’s document – which outlined concerns and made proposals to both the Chinese and US governments – surveyed American firms said they remain “cautious” in their investments.

Chamber chairman Sean Stein said “changing sentiment” among foreign investors would be beneficial, as members have seen “limited implementation” of Beijing’s 24-point policy, a framework released in August to boost foreign investor confidence.

“We are in a stage now where promises and policies don’t move markets, and they don’t lead to investment,” Stein said. “Action leads to investment … that will really change sentiment.”

Made in China doesn’t always mean made in China. Often it means made in China by a Chinese company

Sean Stein

Stein said another impediment to foreign investment can be seen when the Chinese government blocks competition from foreign firms in certain sectors due to a preference for products made in China.

“[But] made in China doesn’t always mean made in China. Often it means made in China by a Chinese company,” Stein said. “What we are seeing is the number of sectors where that applies seems to be growing, not contracting.”

The report highlighted the medical device industry as one sector that has struggled in this regard, despite healthcare being listed in the 24-point document as a priority for greater market access.

US firms in China are more worried about bilateral tensions: AmCham survey

The chamber also called on the US government to clear up details on its expansive export controls with their Chinese counterparts, particularly the “entity list” governing activity in the tech sector.

“The absence of explicit restrictions pertaining to investments in non-sensitive technology sectors in China has cast a shadow of ambiguity over planning and fundraising efforts by US companies and those of US allies and partners,” said the chamber in its report, which was crafted with contributions from over 100 members.

The sluggish state of China’s economy remains a hurdle for American investors. An ailing property market and growing tension in China-US relations, complete with calls from Western governments for businesses to “de-risk” and diversify their supply chains, have all contributed to a loss in confidence from overseas capital.

“The era when American companies or foreign companies, frankly, can invest in China and get returns greater than they receive in other markets is disappearing,” Stein said. “The advantage … has largely disappeared in most sectors.”

The report said tensions in the bilateral relationship were still cited as the top roadblock to business for a fourth consecutive year, though it did welcome the resumption of high-level US-China official talks, including Secretary of State Antony Blinken’s visit to China this week.

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