The Evolving Face Of Foreign Investment In Beijing

May 29, 2023 Posted by China Briefing Written by Chris Devonshire-Ellis Reading Time: 10 minutes

Employment and Business Opportunities Await New And Returning Expats & Foreign Investors

By Chris Devonshire-Ellis

As China begins to open up and welcome foreigners back to the country, it is noticeable upon return that things have changed since that final, pre-Covid year of 2019. Not only, and understandably given the pandemic, did 95% of all foreigners leave the country to get back home, the political attitude and technologies have all shifted in the past three plus years. A third of a decade.

Yet reading much of the Western media coverage, one could come to the opinion that the country, and Beijing in particular, have descended into a wasteland, bereft of innovation and political openness. China is, we are repeatedly told in the West, becoming a draconian autocracy. I lived in the city for ten years and have travelled to Beijing numerous times a year since 1992. I have had an office in Beijing since 1994. So what then, has changed today from 2019, and where is Beijing going in the future?

Arriving in China in 2023

Here’s a tip – if you don’t need to be in China for longer than 6 days, you can arrive without a visa. This means applying at the airport upon arrival, and possessing an onward ticket (but oddly, not from where you originated from). Travelers are allowed 144 hours in the country (6 days) and travel within the permitted scope (e.g., if you enter China through international ports in Beijing, then your scope of permitted travel is Beijing, Tianjin, and Hebei). There are special 144-hour visa-free-transit counters available, and as the scheme is not especially well known, there is hardly anyone there. An easy-to-use fingerprint registration is required, as is a health declaration – and then – voila! – you are back to China. It’s easy, efficient, and fast.

Longer visits require a full China visa which must be applied for in advance and requires your presence at the Chinese Embassy where you are normally resident. This involves biometric data, passport scans, fingerprints and facial recognition photos, and can take up to two weeks to process. The 144-hour visa-free transit helps skip all that.

Beijing – A Foreign Investment Background

Beijing has been a magnet for foreign investors in China for close to 30 years; when I first began my China adventures back in the late 1980’s it was either Beijing or Shanghai as a base to choose from. Shenzhen at the time was popular amongst foreign investors in the manufacturing and energy sectors but was cordoned off from the rest of mainland China by a long border installation: permission was needed to get into the SEZ, making the city more remote.

Shanghai was also big for manufacturing investments, with these gradually spreading out into nearby cities such as Wuxi, Ningbo, Suzhou and Hangzhou, while Beijing was a required destination for operations that ‘needed to be close to the government’. These included of course all the Embassies, plus law firms, tax practices, NGOs and research businesses, all looking to gain insights into Government thinking. That has merit, it has long been a rule of thumb for China business opportunities that ‘follow the Government policies’ would be a potential advantage over competitors.

However, Beijing was never really meant to be a manufacturing base – as the seat of power, it is also inland, with no real export freight connectivity to the coast other than the required supply chains. The China import-export manufacturing function would be directed more towards Tianjin, and the impressive TEDA Free Trade Zone, one of China’s largest, some 150km east of Beijing. Today, Tianjin Port is the ninth largest in the world. Beijing though remained largely as a service centre, although it has inherited some State-Owned manufacturing industries as legacy of Mao Zedong’s era of creating “inland city hubs”. By the late 1990’s the realisation that many of these were polluting and inefficient became increasingly noticeable.

Upon the awarding of the Olympics to Beijing in 2001 (the Games took place in 2008) the writing was on the wall – such industries were to be moved out of the vicinity of China’s capital city. By 2008, most were gone. That just left the service industry where access to Government thinking was required, mostly now reduced to professional services firms or to China HQ of businesses with operations elsewhere in China.
Beijing also began developing its own financial services industry, to compete partially with Shanghai, lessen the potential for Shanghai to claim economic authority, and to allow Beijing a stronger controlling hand over China’s economic policy. I even wrote an issue of China Briefing about it at the time: “China’s Wall Street Arrives” as well as a successful, 184-page business Guide book to Beijing and North-East China.

Since then, other changes have been underway, most notably as the move to renewables energy and environmentally friendly policies have reshaped China’s cities. An urban ‘greening’ programme has been underway in numerous Chinese cities, including Beijing, with the establishment of ‘pocket parks’, little areas of nature planted with trees to introduce a healthier urban environment. Shanghai is possibly farther ahead of Beijing in these schemes at the moment, but a lot of what one sees in Beijing in terms of redevelopment will be similar green areas within a year or two. Covid has also changed attitudes, with a social need to get out and about and enjoy fresher air than has been the case in the past. Beijing’s city dwellers – which include all of the country’s top Government officials – need clean, fresh air.

Beijing Today

Apart from the greening, and the moving out of industries, Beijing has also been undergoing a change in its regulatory environment, and especially within the dissemination of media. As Statista puts it, “in an age where the internet is the main source of news and information for many consumers worldwide, news audiences are at higher risk than ever of encountering and sharing fake news.”
Beijing is well aware of these risks and has been reacting to the dangers by introducing laws and clamping down on any breaches of media that could create social unrest in the country. That has been followed with accusations of censorship, while Beijing has also blocked many websites, including high profile ones that it suspects, or knows have been carrying detrimental misinformation.

However, this then leads to grey areas, where what may appear to be true on one hand, can appear manipulative on the other. This has created some conflicts with media organisations, especially within, but not exclusive to China. Russia and numerous other countries, including the United States and European Union, have followed suit in banning certain foreign media. China is no different or any more media dictatorial in this regard.

Then there has been, partially associated with this, the role of ‘consulting practices’ in China, an issue I recently discussed here in response to recent Chinese investigations into certain US firms and what had prompted investigations. Beijing has introduced regulations concerning the issue of collecting data in China, and especially personal data. That type of investigative work is a hybrid, part journalistic and part detective. Unfortunately, without the proper China approvals, both can be legally problematic in nature.

This is now changing the nature of Beijing as concerns its own foreign investments and ability to attract FDI. There is an assumption that Beijing will do all it can to attract FDI, however it has always done so on a selective basis – tax breaks and other incentives (and occasionally disincentives) have long been used by Chinese policy makers to direct investment where it is needed in China. The same is true of Beijing.
It is also true that certain foreign businesses, most notably in market research, investigations and media, have consequently felt under pressure to leave.

In fact, they are under no obligation to do so, as long as they follow the rules. Yet as one senior, long term China based US legal counsel told me in Beijing on Friday, “A lot of foreign media in China aren’t listening to my advice. And then they get into trouble.” No wonder Chinese officials get frustrated, and the local Police start to visit errant investors.

The result is a handful of very specific sectoral industries are exiting Beijing. They feel unable to perform what amounts to a Western investigative brief yet do so under Chinese laws. Some M&A activity is taking place, but with a lot of this also related to exits. However, there is a caveat: many of these businesses are solely based in Beijing and are not necessarily representative of the national picture. For example, when a foreign journalist or consultant is based in Beijing, retrenchment is all that is initially apparent. Consequently, Western media stories quite often focus on an exodus of foreign businesses from the country, when that is not the full, nor especially accurate picture.

A week prior to my visit to Beijing, I visited Shanghai, (also on a 144-hour visa-free transit) and our offices there. Changes are afoot there too, with curiously many more bicycles on the streets than before (the same is true in Beijing) as free or low-cost bicycles have been made available for short city trips, including by employees now getting to and from home and the office. Physical exercise, rather than sitting in a polluting vehicle is now more trendy. Meanwhile, EV car sales are through the roof.

But where Shanghai differs from Beijing is that our staff are busy with new enquiries coming in to set up new businesses (my practice, Dezan Shira & Associates, assists foreign investors into China) whereas in Beijing our work tends to be more compliance related. But overall, in Q1 this year, our new foreign client business turnover in China increased by 6%. Foreign investment into China is rebounding. It’s just that for personnel based in Beijing, it may not feel that way.

But to some extent, the evolution of Beijing’s foreign investment make-up has long been on the cards. China’s President, Xi Jinping has stated that Beijing’s new role is to be a bona fide capital city and to concentrate on that alone. Manufacturing has been moved out, investigative media is exiting, and Western political attitudes have meant that there is difficult mileage in selling pro-China intelligence to Governments that bluntly do not want to listen.

Whether foreign investors need to be in such an environment is up to them. When I first began my China career, back in the late 1980’s, I was always told “Remember Chris, that you are a guest in China.” I never forgot that advice. Beijing is now enshrining that in its own national legislation, which both makes things a lot clearer, but diminishes the chancers, two-faced and naughty. The city may have lost some of the expatriate population that also contributed to the city social makeup – but then again, who embarked on a China career because of the expatriate population?

Chris Devonshire-Ellis (centre, back row) with his Dezan Shira & Associates Beijing office staff last week. The banner reads L-R with the company Chinese name and two additional phrases: ‘Working Together’ and ‘We are the Best!’

Social Changes

I spent time with Ray Kelly, a long-time Beijing hand who spent part of Covid in Australia and returned to Beijing early last year. He’s one of the early-bird returnees, and had this to say about changes in the city:

Urban Planning

“Apart from the ‘greening’ of the city, we must realise that we live in a city with the population of Australia, so traffic congestion is inevitable and very much on the rise and has always been a discussion point. The ever-increasing numbers of very affordable electric scooters, and the complete disregard of the road rules by the riders of those vehicles is giving the police and municipal governments food for thought. Traffic police now need to watch the pavements, and as people get back to normal, increasing numbers of fines will be issued. Jaywalking can now attract an on-the-spot RMB 50 fine. The authorities want a balance between the mobility of the population, the reduction in emissions, yet to maintain a freedom of movement. It is clear some work still has to be done on managing these concurrent issues. Otherwise, there are bicycles back on the streets – free or low-cost ones that can be picked up and dropped off at convenient bike racks. Stray bikes are rounded up like stray dogs and placed back into the system.”

Expatriate Movement

“Since the GFC in 2008, and because of Covid-19 I have seen (through my client base) significant outward movement and a lessening of expatriate numbers across many industries i.e., education, automotive, hospitality; due in large part to the cost of maintaining expatiates as employees, as well as the fear that once in Beijing/China, movement within and to and from the country was severely restricted. That trend is now reversing. The government’s decision, in December 2022, to see Covid as a “flu” and remove the testing regimen and travel restrictions has been seen as a major positive. Education employment fairs are again seeing large numbers of foreign teachers – capable of earning significant salaries – once again considering the Chinese education market as a viable vocation choice. Likewise, the ‘localisation’ of other industries has slowed, as management look to future economics. Expatriates are needed to help with managerial and foreign market access for China’s growing outbound investment strategies”. (CDE: China’s outbound investment was up 18% in Q1 2023)

Food & Beverage

“The local government have been on a campaign to revamp the F&B scene in Beijing, making it more ‘cosmopolitan’, in line with the structural development and population diversity of the city e.g., the removal of dubious or low-end bars in Sanlitun, and plans to redevelop the area. Meanwhile, the process of application and granting of F&B licences, while not a given, is more relaxed and has been somewhat eased to attract the ”right type” of venue in many areas around the city – another example of the decentralisation efforts to provide access to residents outside the CBD. One could interpret this as an effort by local governments to provide expat-friendly, but higher-end services.”

In discussing Beijing further with Ray, it also became apparent that in returning early, his business was stealing a march on his competitors. A regular visitor at various events, his business now sponsors activities such as Annual Chamber Balls and functions – and as a result is winning market share.

I asked him what his long-term plans were: “I’m not leaving Beijing. The social and expatriate makeup in changing, for sure, but it is also becoming more up-market. It won’t be the same as it was before, but Beijing is evolving to a smarter, more influential city with global influence. It needs people to help it make that transition. Before it was another Chinese city. Now it is changing, just as Washington now has a totally different function than New York. I want to be here for the ride.” (Ray can be contacted here for personal advice and insights about living, working and the opportunities in today’s Beijing. He’s happy to provide some friendly, free advice)

Summary

To summarise then, certain Western media sectors gain an inaccurate perception of China, either because they are industry sectors, usually those engaged in some sort of investigative practices that conflict with China’s own laws on the matter, or they comment from their armchairs back home. Opening up will be gradual, however opportunities remain for individuals and businesses who want to access advantages only they can provide to the China market – which still includes everything from education to selling to Chinese consumers. Fortune favours the brave.
Our recent overview of China’s Middle Class consumer market is here.)

Beijing is fine. It is continuously evolving, it’s just that the city requires a larger understanding of China to be successful as a foreigner. If you have those skills, Beijing and other Chinese cities offer career and business opportunities. But when did that ever really change?

Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. He has had a 31-year career advising foreign investors in China, and may be reached at china@dezshira.com.

To discuss specific Beijing corporate issues, legal, tax, compliance and other operational matters, please contact Sabrina Zhang at beijing@dezshira.com