As China tightens its restrictions on foreign investors, Americans should invest less in Chinese companies and more in the U.S., according to Rep. Raja Krishnamoorthi (D-Ill.)

Concerns surrounding new revisions to Chinese anti-espionage law and exit bans could contribute to future declines in foreign investment. The Select Committee on the Chinese Communist Party addressed these concerns during a hearing on July 13. (RELATED: Winkin’, Blinken, and Nod: Biden Administration Fails on Cuba)

With restrictions tightening around U.S. companies, particularly for due-diligence firms that assess investment risk operating within China, gathering reliable data about China’s economy has become ever more challenging. 

China Squeezes Foreign Business

According to the most recent statistics from 2021, direct foreign investment from the U.S. into China reached $118.19 billion — having risen steadily since 2000.

Despite recent drops in these investments, China continues implementing hostile laws against foreign investors. Outside investment in China slowed down in the first quarter of 2023, and dollar-denominated investment dropped by 5.6 percent compared to last year. 

China claims it faces a national security threat, particularly from the United States. As a result, the CCP expanded its definition of espionage in June 2023. Critics called the revisions “vague” and claimed that the law provides greater pretense for Chinese government overreach in private companies. 

The revised law encompasses “all documents, data, materials, and articles concerning national security and interests included for protection.” However, it does not define what “national security” or “interests” include.

Peter Humphrey ran a due-diligence company in China before the state arrested him and his wife. He detailed the roadblocks American companies and investors face in China in a video presented during the hearing.

“Foreigners seeking to do business in the Chinese market dream of an Eldorado without understanding its legal and cultural differences and the pitfalls of being there,” Humphrey said. “Today, I do not believe it is possible for any foreign company to get the information they need to provide assurances that a business deal or a business operation is safe and clean.” 

Unclear Economic Conditions in China

Shehzad Qazi, chief operating officer of the China Beige Book International, said Chinese anti-espionage laws and crackdowns against due-diligence companies make it difficult to determine economic conditions. 

“China’s economy is more of an information black hole today than [it had been] at any point since its accession to the World Trade Organization in 2001,” Qazi said.

In March, the CCP raided the Mintz Group, Capvision, and Bain — all U.S. consulting firms with locations in China. The raids resulted in the questioning of employees at Bain and Mintz and ended with the arrest of five Mintz employees. (READ MORE: A Glimpse at What a China-Centric World Would Look Like)

China has also implemented laws permitting exit bans against foreign investors, citing concerns over national security. These bans prevent foreign investors from leaving the country. 

Implications for the U.S.

The raids underscore the ambiguity of the relationship between the CCP and private companies operating within China. 

Rep. Mike Gallagher (R-Wis.) argued that the delineation between a Chinese company and the Chinese government has become increasingly difficult under the new CCP laws. 

“I’d submit there’s no such thing as a private company in China,” Gallagher said. “Legislation like the updated Counter-Espionage Law, the Data Security Law, the Anti-Foreign Sanctions Law has codified what was always true. Beijing reserves the right to swipe any data, seize any assets and filch any IP that it wishes.”

If due-diligence firms cannot sufficiently evaluate investment opportunities without Chinese authorities claiming they pose a national security threat, U.S. investors will face greater difficulty doing business in China. Americans must be aware of the uncertainties they face and invest wisely.

Emma Verrigni is a rising sophomore at Hillsdale College studying history and journalism. A member of The American Spectator’s 2023 intern class, Emma enjoys reading philosophy and the news.

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