China's government devoted the week to a red carpet welcome for foreign executives to try to halt a retreat in corporate investment from a market once seen as the engine of global growth.

Chinese Vice President Han Zheng speaks at the Invest in China Summit 2024, in Beijing.

But many executives leave China with a shared caution: while things may not be getting worse, the risks of an expansion in China still outweigh the rewards, they say.

In a series of high-profile events, Chinese officials pledged equal treatment for foreign firms, expressed confidence China will hit its 5% growth target this year and President Xi Jinping held an audience with 15 U.S. business leaders to deliver the message that the theory of "peak China" was just hot air.

Foreign direct investment represents only 3% of total investment in China, but it has been falling for two consecutive years. Investment from overseas has been seen as a signal of confidence in the world's second-largest economy and a way to sharpen the competitiveness of Chinese firms.

Data from China's commerce ministry showed a decline of 8% in foreign direct investment last year. A wider gauge from the currency exchange regulator including flows of retained earnings showed a decline of about 80% in 2023 to $33 billion. It was the steepest drop since records began in 1980.

Among the factors that have dimmed China's allure: concerns about the durability of an economic recovery, increasing regulation, Beijing’s push to forge national champions in strategic industries, and relations with the United States, widely seen as steadier but still strained.

Chinese companies with government ties have also managed to avoid the profit-and-loss discipline foreign investors face, leading to crushing overcapacity in industries such as vehicle production, executives said.

"We would like to see Chinese competitors also have to make profits to stay alive," Mats Harborn, president of truckmaker Scania China, told Reuters on the sidelines of Invest China, one of three forums Beijing hosted.

"This would lead to a consolidation," he said. If it happened, "the weaker actors in all parts of the supply chain are forced out, and the serious ones, who have the ability to live in the competitive market economy on their own terms, stay," he said.

Other attendees and analysts said a sense of promise fatigue has set in for investors. China's cabinet has since August announced at least 48 measures intended to restore foreign investor confidence.

Jens Eskelund, President of the European Chamber of Commerce in China, said most have not yet been backed by action. European firms still feel they operate at a disadvantage in market access, government procurement and being able to sit down with government officials, he said.

"The clearest indication of equal treatment will be when our members tell us they no longer experience these and other challenges," he said.

He Yadong, a commerce ministry spokesperson, said the presence of so many multinational companies in China this week showed "the strong 'magnetic attraction' of the Chinese market".

MESSAGE DELIVERED

Still, the meetings gave companies a window to make their case. U.S. pharmaceutical and life science companies used the China Development Forum (CDF) to voice concerns on how China's data regulations hurt their ability to compete, attendees said.

"Now the question is: does the Chinese side hear that message and decide that those are issues that it wants to resolve?" Sean Stein, president of the American Chamber of Commerce in China, said.

The official choreography of the three consecutive meetings - the CDF, Invest China, and the Boao Forum for Asia held in Hainan – also raised questions.

The country's second-ranking official, Li Qiang, skipped meeting with visiting CEOs at CDF this year, an established channel since the event began in 2000.

Xi then held a surprise audience only with U.S. CEOs, including the chiefs of Qualcomm and Blackstone, in a meeting that was kept off the CDF's agenda, according to two people with direct knowledge.

"It is an awkward signal to other investors and showcases how strategically and selectively China chooses to engage with international companies," said Max Zenglein, chief economist at MERICS, a Berlin-based China studies institute.

Ben Simpfendorfer, a partner at consultant Oliver Wyman, said it was significant for companies already invested in China that Beijing was trying to signal change.

"There is a campaign, and the fact that it comes from the very top is important," he said. "The mood is more positive than it was 12 months ago, but the world is also very different."