China’s big cities promise incentives to retain foreign research centres, talent as ‘uninvestable’ spectre haunts outlook
- Beijing and Shanghai roll out packages to make it easier on expats who continue to see China’s problematic regulatory and geopolitical environment as a deterrent
- Effectiveness of charm offensive seen tested by ongoing tech war between US and China, but local authorities remain hopeful for an economic boost
As fears grow that the flow of foreign cash and talent into the world’s second-largest economy may slow to a trickle, two major Chinese cities have launched charm offensives to retain foreign R&D centres.
The capital city of Beijing now offers subsidies of up to 50 million yuan (US$6.9 million), residence permits, faster visa processing for top talent, and other incentives, authorities said in a notice issued during the China International Fair for Trade in Services, which kicked off at the weekend.
Meanwhile, Shanghai is looking to help more foreign R&D centres restructure into local entities. The business hub is also updating measures and lining up new incentives as officials redouble efforts to keep the large number of foreign businesses grounded in the city.
“The local measures announced were not strictly ‘measures’ but proposals to get the attention of foreign firms and the international scientific community,” said Jean-Francois Dufour, co-founder of consulting firm Sinopole.
He added that conditions in China were still not ideal for guaranteeing legal protection in a constantly changing regulatory and geopolitical environment.
“The hostility towards China by the Biden administration will make any US corporation think twice before putting a new R&D centre in China,” said Professor David Zweig with the Hong Kong University of Science and Technology’s School of Humanities and Social Science.
Top-tier cities are implementing China’s broad-stroke notices announced in January and August to optimise the operating environment for foreign companies amid slackening economic growth.
The wide yet vaguely defined scope of China’s new national-security and anti-espionage laws, coupled with raids, arrests and fines targeting some foreign firms, has further sunk sentiment.
Some American businesses have already complained that China is “uninvestable”, according to comments by US Commerce Secretary Gina Raimondo during her trip to China last week.
One of the most high-profile pullouts was by Oracle, which shut its China R&D centres in 2019. IBM and Ericsson downsized their R&D centres in Beijing and Nanjing in 2021. Many overseas researchers with IBM, GE, AstraZeneca, GSK and Pfizer also exited China in the past five years. Having laid off local employees, these research and development centres either returned to the West or decamped to India and Southeast Asia.
But local governments are doing their bit to address some gripes.
Beijing’s Haidian district authorities noted in a report that multinationals were wary of weak intellectual property (IP) protections, and that many had opted to base core R&D assets and activities elsewhere.
Haidian, a key university area accommodating Tsinghua and Peking universities, also hosts the largest cluster of foreign research entities in China.
The report called for stricter IP protections and early intervention, like strategic capital injection, to bail out “high-value” foreign R&D entities if operating costs were among the reasons for closure. It also recommended documenting foreign R&D-centre personnel changes to “detect” capital and staff flight.
Haidian looks poised to replicate Shanghai’s success of turning foreign R&D centres into local enterprises. Shanghai brokered a deal in 2017 for AstraZeneca to spin off its research centre into a local company, with the British-Swedish drug giant among the new company’s major shareholders.
