Xi's Mixed Messages Leave Whiplashed Investors Wary Of China

President Xi Jinping spent last year trying to woo foreign capital while continuing to reshape China's business environment to ensure his power can't be challenged at home or abroad. Those sometimes-conflicting goals have left investors confused and put bureaucrats on edge.

His government's apparent backpedal this week is the latest example. Regulators. shocked gaming companies on 22 December with rules to cap in-game spending and prohibit mechanisms to incentivize more play time, in a bid to control a sector with growing sway over the nation's youth. That wiped $80 billion in market value off firms such as tech giant Tencent Holdings Ltd.

Then came a report that authorities had fired the top official at the country's gaming regulator and Beijing said it may review the controversial rules, suggesting a heightened sensitivity to offending markets. Tencent the operator of WeChat-recovered some of its gains, but remains down about 4% since the proposed curbs emerged. China's government hasn't commented publicly on the reported personnel changes.

The episode underscores the challenge facing Xi as he looks to both revive an economy struggling to arrest a slide in the property sector, while also strengthening national security as military and trade tensions rise with the US.

Companies have been caught in the middle, with executives hearing warm words from top officials only to then see authorities probe consultancy firms, expand a vague anti-spy law and restrict access to data.

Conversations with business leaders who have operations in China reveal that whiplash from Beijing's mixed messages on security and the economy are turning investors more cautious.