Pessimism swallows China’s economy as foreign investment fades

“No matter what you sell, your business in China must be huge, if only the Chinese who must buy your goods will do so.”

The “if only” clause was no more important. In the 85 years since Carl Crow, an American advertising director based in Shanghai, wrote these words in his book Four hundred million customersChina’s population has increased by one billion people. Their combined purchasing power is now second only to Americans.

However, the chasm between promise and reality in the fabled Chinese market haunts foreign companies today as much as when Crowe was trying to market American lipstick and French brandy to the emerging middle class in the 1930s. A host of political and regulatory issues – exacerbated by Xi Jinping’s tough COVID policies and stance on Russia’s war in Ukraine – are conspiring to undo the dreams of many multinational corporations.

The result is that direct investment in China by foreign companies is off the cliff. Jörg Woetke, president of the European Chamber of Commerce in Beijing, says that unpredictability is prompting the European business community to suspend investments in China. “Many of our members are now taking a wait-and-see approach to investments in China,” he adds, citing an attitude survey this month of the chamber’s 1,800 members. Twenty-three percent of our members are now considering moving existing or planned investments out of China, an all-time high. And 77 percent said China’s attractiveness as a future investment destination has declined.”

Pessimism has infected the American business community, too. Michael Hart, president of the American Chamber of Commerce in China, warns that the travel hassles faced by foreign executives seeking to visit their operations in China – including flight cancellations, visa complications and lengthy quarantines on arrival – will lead to a “massive drop in investment” Two, three, four years from now.”

The despair and pain of expat families locked in their apartments for weeks in Shanghai and elsewhere convince many to pull out of the departure gates as quickly as possible. A survey by the German Chamber of Commerce found that nearly 30 percent of foreign employees have plans to leave China.

“You didn’t see video The man in Shanghai yelling “I want to die”? asked a British teacher residing in the city, who declined to be identified. “Well, the rounds have been made here too. Many people suffer from mental health problems. It’s really hard staying home for weeks, especially with young children.”

All of this may herald a fundamental shift in how the global economy operates. For decades, China has been one of the most important destinations for Western multinational companies seeking manufacturing operations abroad or increasing sales in the world’s largest emerging market.

In 2020, it crossed a milestone, overtaking the United States as the leading global destination for new FDI, According to United Nations data. Now it looks like a reversal is on the way. And it showed the lowest outcome of the foreign investment projects established – which include new factories and other plans announced by foreign companies Quarterly total in the first quarter of this year since records began in 2003, according to FDi Markets, the FT’s database.

Data compiled by the Rhodium Group, a consulting firm, shows a similar trend. The main FDI figure for EU firms was boosted by a single long-planned acquisition, but the value of new new projects slumped to its lowest level in years. “The boom is starting to boom,” said Mark Weitzky, an analyst at Rhodium, noting that official FDI figures in China have been exaggerated due to factors such as counting profits of multinational corporations in China as investments.

Sure, some multinationals are still doing well in China, but growing tales of sudden splits are making headlines. Boeing’s largest customer in China announce It has removed more than 100 737 Max planes from its planned purchases this month.

American sportswear group Nike and Swedish fashion store H&M were among the brands targeted by the Chinese Consumer boycott Last year after they made comments about forced labor in Xinjiang, where Chinese authorities run internment camps for Uyghurs and other minorities. Friction from the US-China trade war has swelled the number of multinational companies shifting manufacturing capacity from China to Vietnam, Malaysia and other countries in Southeast Asia, Latin America and Eastern Europe.

Added to this are concerns about China’s loyalty to Russia as it massacres Ukraine, raising fears that Beijing could one day also become the West’s military opponent. Wutke says companies in China are forced to “think seriously about how to mitigate the risks of any possible deterioration in EU-China relations”.

George Magnus, author of red flags, a book on China’s weaknesses, recognizes an inflection point. “I think China’s support for Putin and the government’s COVID-free response to its citizens are watershed moments that are now forcing people to review and reconsider the consequences and meaning of the business operating environment in China,” he says.

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