Kim Kyung Hoon / Courtesy Reuters A shopping cart full of products in a Walmart in Beijing, February 18, 2014.

Closed Door Policy

How China's Reforms Are Pushing Away Foreign Business

"We shall proceed with reform and opening up without hesitation," said Chinese President Xi Jinping to his country's top leaders at a symposium last month that marked the 110th birth anniversary of his predecessor Deng Xiaoping. At first glance, his pledge appeared sincere. In the two years since taking office, Xi has consistently advocated a reform agenda intended to continue the economic revitalization and restructuring that Deng started in 1978. Xi’s campaign includes plans to reduce government meddling in the economy by making it easier for private-sector firms to compete with state-owned enterprises (SOEs) and allowing companies and individuals to invest and borrow more freely.

At the same time, however, Beijing has become less open to foreign businesses, subjecting them to costly fines, denying their mergers, refusing their applications for licenses, and detaining and deporting their managers. According to a survey conducted in August this year by the American Chamber of Commerce in China, 60 percent of foreign businesses say they feel less welcome in China, an increase of nearly 20 percent from last year. According to the survey’s results, a growing number of multinational companies feel they “are under selective and subjective enforcement by Chinese government agencies.” Roughly half of those surveyed said that foreign firms were being singled out in Beijing’s anti-corruption investigations. And the market has responded: In August, foreign direct investment into China fell by 14 percent from the previous year, following a 17 percent drop in July.

All of this feels familiar. Chinese economic reforms have long come with resistance to foreign business. Indeed, Deng Xiaoping’s market reforms were forged amid a decade-long political battle that pitted radical reformers against powerful entrenched interests. In 1983, for example, senior conservative leaders Chen Yun and Deng Liqun launched a campaign against “spiritual pollution” from abroad. Deng’s reforms were accepted only after his now-famous Southern Tour of China in 1992, during which he generated widespread local support for opening China’s markets to foreign competition. By using his bully pulpit to

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