Xi Jinping’s message that China wants to roll out the red carpet for foreign businesses stands in stark contrast to the increasing difficulties many companies experience on the ground.

In written remarks Thursday to the APEC CEO Summit in San Francisco, the Chinese leader said his government would take more “heart-warming” measures to attract foreign nationals to the world’s second-largest economy, which has struggled to regain its footing in the wake of the pandemic.

“Just as some leaders of the business community have said, China has become a synonym of the best investment destination, and that the ‘next China’ is still China,” he told the economic forum.

Yet, the business climate has deteriorated markedly in recent years. The world’s most-stringent Covid restrictions, investigations into foreign companies, and increased compliance risks due to sanctions and other restrictions from the US and Europe have all taken a toll.

A measure of foreign direct investment this month turned negative for the first time in 25 years, while a recent survey by the American Chamber of Commerce in Shanghai shows respondents are the gloomiest they’ve been on business outlook for decades.

“It may take more than some warm words to reverse the capital outflows,” said Robert Carnell, regional head of research for Asia-Pacific at ING Groep NV. “Is this the beginning of a new more inviting and open China? I honestly have no idea but I wouldn’t bet on it.”

Foreign firms are grappling with a growing list of challenges, including tepid economic activity, unpredictable regulation, worries over employee safety and curbs on transferring data overseas. US Commerce Secretary Gina Raimondo said in August that businesses told her the world’s second-biggest economy was “uninvestable.”

From Morgan Stanley to the law firm Dentons, some of the world’s largest companies have transferred out key employees and hived off local operations. Vanguard Group Inc. dismantled its last team in China and global pension funds have shrunk their exposure.

Earlier this year, Ford Motor Co. said it planned to scale back future investment in China, and technology companies including Apple Inc., and HP Inc. are planning to move production out of China.

Several consultants and lawyers serving foreign businesses who once regularly worked on M&A deals say that now they are mostly dealing with dispute resolution and exit strategies. Some US brands are looking to move manufacturing out of China due to rising geopolitical risks including a possible Taiwan conflict, according to a person overseeing factories in Southeast Asian productions hubs, who asked not to be identified citing private client discussions.

Strict laws governing data flows are also increasing anxiety for foreign businesses.

While China’s cyberspace regulator proposed easing rules in September, more companies are weighing the cost of localizing data to ensure continued access to a market with more than a billion consumers. One foreign consultancy started using a separate IT system when it opened a China office last year, while US giants like Apple and Tesla Inc. have set up domestic data centers.

The mounting challenges have made companies think twice about pouring more money into China.

Erik Visser, CEO of the Denmark-based animal feed maker Hamlet Protein, has been considering investing in Vietnam instead of expanding operations in China, citing concerns such as access to independent legal arbitration, enforcement of environmental regulation, data protection and geopolitics.

“There is an uncertainty with the ambitions that China has on the world stage,” Visser said in a recent interview. “And that geopolitical uncertainty is also a consideration on deciding when to invest or where to invest.”

Positive Signs

Even so, plenty of businesses are still making money in China. The US-China Business Council, a co-host for a dinner that Xi attended in San Francisco, reported that 80% of companies surveyed were profitable in 2022, a decrease of 9 percentage points from a year prior. And China was still among the top five priorities for 77% of respondents, down from 96% a decade ago.

Read: China Attempts to Please Foreign Firms as Investment Slumps

Chambers of commerce and foreign companies have also seen Chinese officials trying much harder to engage with them this year.

Earlier in November, the Ministry of Commerce asked local governments to clear discriminatory policies facing foreign companies, such as ensuring that subsidies for new energy vehicles aren’t limited to domestic brands. Beijing also announced a 24-point plan in August that includes pledges to offer overseas firms better tax treatment and make it easier for them to obtain visas.

‘Promise Fatigue’

Government officials “are clearly trying hard” to speak with foreign companies, understand the complaints and explain government policies, according to Jens Hildebrandt, executive director of the German Chamber of Commerce’s North China chapter.

“In the past, companies can accept a certain level of promise fatigue given that China could economically deliver but certainly it’s harder to accept fatigue if there is a slowdown,” he said.

While Xi seeks to reassure foreign investors, his administration’s concurrent focus on security this year has undercut the policy predictability that foreign firms are craving.

Also: Why It’s So Hard for China to Shake Uninvestable Tag: QuickTake

Chinese authorities in August fined American due diligence firm Mintz Group around $1.5 million for illegal data collection, months after officials raided its Beijing offices and detained five of its Chinese employees. In April, American consultancy Bain & Co. said Chinese authorities had questioned staff at its Shanghai office. Security officials also publicized a raid at Capvision, a consulting firm with headquarters in New York and Shanghai, accusing the company of abetting espionage efforts by foreign forces.

In recent months, the Ministry of State Security opened its own official WeChat account, making sweeping proclamations that often go beyond the traditional scope of the domestic security agency. In one of its latest posts, it pledged to help prevent financial sector risks from jeopardizing China’s national security.

“Companies will need to see a long string of positive signals because the negative signals were so consistent for so long that it’s a lot to overcome,” said Scott Kennedy, a China specialist at the Center for Strategic & International Studies. “It’s very difficult to build that sense of trust and durability once it’s been shaken.”

More: Xi’s Security Obsession Turns Ordinary Citizens Into Spy Hunters

--With assistance from Rebecca Choong Wilkins, Fran Wang, Jacob Gu and James Mayger.