New laws in China are stifling economic growth.
Increasingly severe national security strictures are driving away foreign business and foreign investing—American, European, and Japanese. These once critical sources of growth and Chinese economic development have begun to look elsewhere for opportunities. Chinese authorities in Beijing may think the loss is worth it, but their choices will leave them with a slower-growing and less dynamic economy.
Beijing’s latest move is a revision in the law on state secrets, the first in some 15 years. The amendments, which will go into effect on May 1, fundamentally expand what the law can prosecute. Most pointedly, the amended law adds a new category of potential violation called “work secrets.” The change will, among other things, limit the travel and work of people who leave sensitive positions.
Although many parameters of the new law remain ill-defined, it should be clear that it invites the involvement of the Chinese Communist Party (CCP) in a much broader range of economic activity and makes every business in China, especially foreign-based firms, much more legally vulnerable. Especially because the CCP has left vague how the new law will be implemented, there is reason to expect capricious and arbitrary applications that will further discourage anyone from thinking of China as a new venture or source of products.
If this latest measure were all there was, foreigners might still take a chance on China, but as it is, this latest change is the 20th such effort to ratchet up the power of state secret and espionage laws in just the past few years.
This latest expansion from state secrets to work secrets certainly flies in the face of CCP leader Xi Jinping’s remarks before American businesspeople in November 2023, when he visited San Francisco for an Asia-Pacific Economic Cooperation (APEC) event. He invited American investment in China and assured attendees that “China’s resolve to foster a market-oriented, law-based, and world-class business environment will not change.”
After the tensions that had grown out of the lockdowns and quarantines of the COVID-19 pandemic and the zero-COVID measures that delayed China’s reopening, the American business leaders responded enthusiastically to Xi’s remarks, going so far as to give him a standing ovation. Subsequent actions, however, most notably the extension of the state-secret law, put the lie to the feelings that ran so high in San Francisco. If the businesspeople are realistic—and they usually are—they will make their decisions according to actions, not words.
If, as it seems, China wants to isolate itself from the world economy, it will suffer, but it will no doubt get by. It has a talented population and an economy large and diverse enough to do so. But if China wants to prosper—especially if it wants to approach the fabulous pace of advancement it once enjoyed—it will moderate the recent obsessions with security. Failing that, the CCP will drive away Western and Japanese sourcing in China and the exports that have been and remain a crucial part of the economy. It will also keep out the foreign investment and interactions that have contributed to the Chinese economy’s dynamism. In other words, on its current path, Beijing will ensure a slower-growing, less vital economy than it once enjoyed.
