Foreign businesses no longer love China

They certainly sound nasty: an April survey by the European Union Chamber of Commerce in China found that 23% of respondents were considering relocating existing or planned investments in China. to other markets, the highest total in the past decade.


whose suppliers in China form the country’s largest source of private sector jobs, are motivating their contractors to produce more in other places. Even before the latest wave of Omicrons hit Shanghai, more than a third of American companies told the American Chamber of Commerce this spring that they would reduce investment in the country due to the policy environment there.

Large foreign companies like Apple have invested heavily in China – and are still making enough money there – so there is little prospect of a mass exodus. But the stars are aligning for a more concerted, long-anticipated but slow-coming effort by major producers to diversify away from the country. Besides slower growth for China itself, consequences could include further weakening of the yuan and a higher profile for more growth-oriented Chinese leaders like Premier Li Keqiang, who has recently enjoyed some rise in mentions by the official Chinese media after a long time in the wilderness.

The country’s strict anti-Covid-19 policies, the main cause of much of Shanghai being locked down for the past two months. Add in Beijing’s tacit support for Russia’s invasion of Ukraine and the massive damage to China’s domestic economy from last year’s crackdowns on key technology and asset sectors. importance, and Beijing’s policy mix is ​​starting to look toxic to foreign companies that often swim more calmly, with clarity, than in many countries.

While Foreign investment soars into China in 2020 and 2021, in contrast to the overall decline in relations between Beijing and Western capitals at the time, in retrospect, is not difficult to explain: China, especially China’s exports in particular, are booming while the rest of the world, including other Asian export hubs, have been volatile. And while export competitiveness is certainly not the only factor for outbound investment in China, it is certainly an important one. Over the past two decades, the overall trend between China’s export growth and the corresponding foreign direct investment has been very good – even for the Commerce Department data series, excluding reinvested gains. of foreign manufacturers.

Now, China’s export growth has slowed sharply thanks to a combination of the Omicron lockdown, weakening overseas demand, and most likely stiffer competition from other low-cost manufacturers that have closed last year.

Exports may recover temporarily if Shanghai recovers. But most of these factors are likely to persist for a while.

There will definitely be many Disruptive door lock in China due to the very low probability of a substantial move away from the “zero-Covid” policy as early as 2023. And while alternative production locations such as Southeast Asia and India both present difficulties. On their own, they also have a number of distinct advantages, including a burgeoning young workforce — and governments that do not position themselves as ideological and, potentially military adversaries of other countries. development democracy.

Perhaps most importantly, Beijing’s resolute attack on some of its own most successful private companies, combined with its rigid approach to Covid-19 and the direct impact of both two has seriously affected Chinese consumers and the labor market for young graduates. This raises serious questions about both the future growth of the Chinese domestic market and the stability of the overall policy environment for business.

Perhaps the upcoming personnel changes at the 20th Party Congress this fall will herald the start of an adjustment process. Regardless, it will take Mr. Li more than a few speeches to convince foreign businesses that China is still the country of the future.

Write letter for Nathaniel Taplin at nathanie[email protected]

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