China has a messaging problem. On one side, President Xi Jinping personally assures world leaders that the country is open for business. On the other, Beijing keeps passing laws that make foreign companies wonder if they are welcome at all.
The contradiction is becoming harder to ignore. Xi told Irish Prime Minister Micheal Martin in January that China would “promote high-quality development and expand high-standard opening-up.” He made a similar pitch to outgoing British Prime Minister Keir Starmer. The official line is consistent: foreign capital is needed, valued, and protected.
The reality on the ground tells a different story. Foreign direct investment into China fell 27.1 percent year-over-year in 2024, the sharpest decline on record since 2008. The slide has continued into 2025 and 2026. And Beijing has responded not by relaxing its grip but by tightening it further.
Two State Council decrees published earlier this year, numbered 834 and 835, are the latest reason for caution. The regulations are presented as measures to counteract the effect of foreign sanctions. In practice, they restrict supply chain data sharing and punish companies that stop working with Chinese suppliers, on the grounds that such breaks could damage entire supply chains.
The most chilling provision is the invocation of criminal liability for executives of companies that violate the compliance and controls measures laid out in the decrees. For a foreign executive based in Shanghai or Beijing, this is not an abstract risk. It means that a business decision made in a boardroom in London or New York could land a person in a Chinese prison.
These decrees sit on top of an existing legal architecture that already gives foreign companies reason to hesitate. China’s National Intelligence Law, passed in 2017, requires all organizations and individuals to cooperate with the country’s intelligence services. The Foreign Investment Law of 2020 brought some clarity but also subjected foreign firms to a screening regime that remains opaque in its application. The data security and personal information protection laws that followed added layers of compliance burden that smaller firms struggle to meet.
The gap between Beijing’s words and its actions is now wide enough that it is reshaping corporate strategy. Multinationals that once treated China as a must-have market are increasingly asking a different question: can we afford the risk? The answer, for a growing number of firms, is that they cannot.
Some companies are quietly reducing their exposure, moving supply chains to Vietnam, India, or Mexico. Others are maintaining their China presence but freezing new investment. Very few are publicly withdrawing, because the act of leaving carries its own risks under Chinese law. But the direction of travel is clear.
China’s official FDI figures do not fully capture the shift because they count capital that is already committed. The leading indicators are in the plans that are being canceled and the projects that are never started. The Diplomat’s Bonnie Girard, writing on this topic, notes that China’s official messaging on foreign investment “doesn’t match the actual developments on the ground.”
The irony is that China needs foreign investment more than it admits. The property sector is in a prolonged slump. Domestic consumption has not recovered enough to replace the growth engine that exports and infrastructure spending once provided. Technological upgrading, especially in semiconductors and AI, depends on access to global markets and capital that Chinese firms cannot fully replace.
But instead of addressing the structural concerns that foreign investors raise, Beijing has doubled down on the legal and regulatory tools that scare them away. The result is a self-inflicted wound: a country that needs capital but keeps passing laws that repel it.