Mar 31, 2024 - Economy

"Convince us to stay": U.S.-China ties see head-spinning shift

Illustration of a business person straddling a yellow star and a white star

Illustration: Sarah Grillo/Axios

For decades, Corporate America has raced to cash in on China's economy. Now China officials are in sell-mode, a stunning reversal from years past.

Why it matters: CEOs know the two nations are economically intertwined in a way that can't easily be undone. But executives are more cautious, a subtle yet significant sign of a power dynamic shift underway between the U.S. and China.

What they're saying: "Often foreign companies were on the solicitous side, like 'can you please let us in?,'" Kurt Tong, the former U.S. envoy to Hong Kong, tells Axios.

  • "Now it's a little bit more like 'convince us to stay,'" Tong, who is currently at the Asia Group, adds.

Driving the news: China president Xi Jinping last week hosted CEOs from delivery giant FedEx, chipmaker Qualcomm, mega-insurer Chubb and others.

  • It was the second time since November that Xi met with U.S. executives: last fall, he dined with a group in San Francisco—where he also met with President Biden.
  • Meanwhile, U.S. officials keep calling out Beijing, a sign of still-festering tensions. In a speech, Treasury Secretary Janet Yellen warned about overproduction in China that "distorts global prices ... and hurts American firms and workers."

China's key goal with CEOs: gin up enthusiasm for investing in China, with Xi playing a role that might have been unthinkable in previous years, when businesses clamored for a presence there.

  • "The main takeaway—which is an extension of the San Francisco event—is that Xi Jinping hosted himself," bucking traditions of meetings hosted by other top leaders, says Tong, who attended the California gathering.
  • "The fact that he made the effort to carefully prepare and invite a range of really important CEOs shows intentionality to try to assuage concerns," he adds.

The backdrop: The flow of money into China from overseas firms has slowed. For the first time on record, more foreigners yanked funds out of the nation than those that put funds in for a period last year, by one measure.

  • The latest government data shows foreign direct investment dropped 20% in the first two months of the year, compared to the same time in 2023.

The intrigue: It's not the years-long boom that enticed businesses. China's economic prospects currently look grim, with sluggish demand and a property crisis weighing on the economy.

  • National security concerns and abrupt regulatory crackdowns have also undermined confidence.
  • "It was: 'China is the world's second largest economy, you have to do business there," hedge fund manager and famed investor Kyle Bass tells Axios.
  • "Well, now Xi Jinping has shown you he can just turn industries off."

In the economic boom times, some businesses "closed their eyes" and turned over their technology to China, says Wendy Cutler, a former top trade official in the Obama administration. "That was the price of staying in the Chinese market and they felt it was worthwhile."

  • Now there is more doubt: "Businesses are skeptical when China says, 'We're open for business' and then a senior business executive is being detained and new security-related legislation is out," Cutler, the current vice president of the Asia Society Policy Institute, says.

The bottom line: Despite the current rough patch, multinational firms won't willingly ditch the nation completely — a side effect of the deep economic ties between the U.S. and China.

Go deeper