Beijing is on a collision course with the West as it tightens its grip on its economy and financial markets. It could lead to a lot of self-inflicted wounds.
Earlier this year, Xi Jinping’s most senior diplomacy adviser referred to the need for China to effectively use its legal weapons, “constantly enriching and perfecting our legal toolbox for foreign struggles”.
In the June quarter, foreign direct investment was 87 per cent lower than in the same period last year, triggering an intense effort by Chinese officials to convince foreign investors to return, an effort undermined by the deployment of its legal toolbox. Foreign direct investment was 87 per cent lower than in the same period last year, triggering an intense effort by Chinese officials to convince foreign investors to return.That’s buttressed by what appears to be a screening of companies wanting to list. Generally, those regarded as being engaged in activities with national strategic importance are being given priority to list and raise funds via initial public offerings. Non-strategic listings are being discouraged.
The “lawfare” is reshaping China’s capital flows and markets into what Washington think tank the Foundation for Defense of Democracies describes as “capital markets with Chinese characteristics”.A paper released by the foundation earlier this month says Beijing is re-engineering conditions for foreign businesses through the toolbox, seeking to bend investors to the party’s priorities and render overseas regulators irrelevant.
Indeed, the crackdowns on foreign consultancies and their networks of local experts and their impact on companies’ ability to undertake what would be routine due diligence investigations in Western economies leaves companies that continue to operate in China exposed to their home regulators and potentially costly regulator and investor litigation.
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