BEIJING: In a time of unprecedented hardships and uncertainties, it may seem risky for Chinese foreign businesses to stand on the fence. However, for some people, waiting is still the safest course of action, at least for a while.
Many foreign companies that are determined to maintain a presence in the country continue to delay expansion plans or, according to business insiders and representatives, even in the Greater Bay Area, one of China's most economically dynamic regions. Expansion plans have started getting delayed.
It comes after more than two years of stringent and sometimes illogical coronavirus controls, supply chain issues and a deterioration in bilateral ties with Western countries.
According to Tess Chen, a senior executive at a Japanese consultancy firm in Guangzhou, who declined to identify her company due to the sensitivity of the subject, "Japanese companies and other foreign companies are scaling down their operations in China."
Although Chen's office operates in southern China and could benefit from such efforts to boost the local economy, Beijing has pledged to use the Greater Bay Area to build a megacity cluster there.
Despite this, Chen claimed that ancillary policies cannot "offset" the significant effects of China's strict zero-Covid policy.
We will not leave China unless we absolutely must, but we also lack the drive to increase investment, Chen said.
For next month's 20th Party Congress, when leaders will focus on the country's development for the next five years, policymakers are concerned about this type of dwindling trust among foreign investors and its potential impact on China. as an investment destination.
China faces challenges on multiple fronts as a result of external factors, including conflict in Ukraine and tensions in the Taiwan Strait, which also reduces its appeal to multinational corporations.
According to Joerg Wutke, president of the European Union Chamber of Commerce in China, "an ever-increasing list of political developments is now having an impact on trade." For example, according to a third of European businesses, China is now a less desirable place to invest as a result of Russia's invasion of Ukraine.
Wutke said Beijing is "prioritizing ideological factors at the expense of its economy" if it has such a strict virus-control policy.
China's economic growth was only 0.4% during the second quarter of the year, due to stringent regulations and widespread lockdowns in important cities such as Shanghai.
US House Speaker Nancy Pelosi's controversial visit to Taiwan last month prompted China to conduct extensive military exercises that surrounded the independent island, prompting some to declare that migrants there were "shooting" before leaving with their families. Can't wait to start".
Wutke said the companies are evaluating how a blockade or war would affect their international operations, especially if they were forced to withdraw completely from the Chinese market, as was done from Russia.
A similar annual survey by the US-China Business Council showed that US businesses in China were in a "wait-and-see mode" and had no immediate plans to change.
The survey revealed historically low trade optimism in China, with US companies blaming weak domestic demand, supply-chain disruptions and strained bilateral ties as reasons.
According to Tommy Wu, Chief Economist for China at Oxford Economics, both internal and external factors are clearly influencing the investment choices made by multinational corporations in China.
By employing a "China plus one" strategy, it simply means they will be more cautious and avoid putting all their eggs in one basket, he said, noting how some foreign investments are being diversified elsewhere. .
According to the most recent data, investment in the United States decreased by 23.8% in 2020 from 10 years ago, and investment by the European Union decreased by 11.8% in 2020 compared to the previous year.
Although some multinational corporations are concerned about macro issues, Liu Wei, a partner at the Shanghai office of the Pinsent Mason law firm, clarified that "a lot depends on specific industries and specific companies."
He gave the example of electric vehicles (EVs), describing it as "a hot industry" in which many of his firm's clients are "actively investing." According to Liu, foreign funds are being poured into the production of basic electric vehicle (EV) equipment, batteries and fast-charging services.
"Investment decisions for those multinationals with strong demand in China, or with a keen interest in acquiring manufacturing capabilities, technologies or distribution channels, have not been significantly impacted," Liu said.
But even in the Greater Bay Area, a hub for high-tech manufacturing that aspires to become a global economic powerhouse by 2035, foreign investors continue to encounter obstacles when trying to gain access to the artificial intelligence and new-energy markets in China.
Anti-pandemic measures, according to Alfonso Ballesteros, the founder of the Hong Kong-based consulting firm Crossbow, have made it "remarkably difficult, and in some cases impossible," for expatriate staff members there to conveniently move across the border or visit other markets in the area.
"Investment has cooled off as a result," he said. Some projects had to be cancelled, while others had to be delayed.
According to IHS Markit, the Greater Bay Area, which consists of nine Guangdong province cities as well as Hong Kong and Macau, had a combined GDP of US$2 trillion in 2021. About the same as Canada's GDP for the previous year.
But the issue of practicality still exists. The "alignment of standards" for transferring services, goods, and finances would be advantageous to the region, according to Peter Burnett, chairman of the British Chamber of Commerce in Hong Kong.
Burnett stated that now is the time to "focus on the next stage of policy alignment by facilitating research and development, as well as supporting start-ups" after observing "real progress" in the development of physical infrastructure.
Hugh Chow, a partner at the Greater Bay Area-focused Radiant Tech Ventures, claims that foreign investors face new difficulties when navigating China's regulatory policies, which are frequently impacted by political circumstances.
Investors frequently pay closer attention to whether a project is sensitive in terms of the regulatory framework. They also try to learn more about the backgrounds of their investment partners.
But despite these challenges facing multinationals, Beijing continues to paint a rosy picture to play up the Chinese market as an investment destination.
The China Council for the Promotion of International Trade's secretary general, Sun Xiao, noted that in the first half of the year, EU investment in China increased by 15% year over year as businesses like BMW, Audi, and Airbus expanded their operations there.
The council also cited a survey it conducted last week that received responses from 160 multinational corporations in Europe. It was discovered that 65% of respondents had kept the size of their production operations the same, 15% had shrunk them, and 1% had announced their intention to leave China.
China continues to be a lucrative market for foreign businesses, according to Lu Jinyong, director of the China Research Centre for Foreign Direct Investment at the University of International Business and Economics.
International companies have a history of succeeding in China, he claimed. The estimate that China's middle-class population will increase from 500 million to 800 million by 2030 gives the country a competitive edge that can draw in foreign investors, in addition to the country's extensive rules and regulations.
According to the Ministry of Commerce, overall foreign direct investment (FDI) inflow increased 21.5% year over year to US$123.92 billion for the first seven months of this year, with consistent growth in investment from South Korea, the United States, Japan, and Germany.
According to Guo Ting Ting, a minister's assistant, the ministry anticipates that the most recent round of "stabilisation policies," which expand the areas for foreign investment in high-tech manufacturing, technology, and service sectors, "will encourage growth and maintain the steadiness of foreign investment."
But that is still up in the air, especially since China's zero-Covid policy has no sign of ending.
"European companies will not fully decouple from China," asserted Wuttke at the EU chamber, "as long as they continue to straddle the fence like many of their international counterparts, juggling risks and trying to seize opportunities." Simply put, the market is too large and offers tremendous opportunity for large multinational corporations with the means.
He continued, "While there are still a few very large companies that are willing to make significant investments, there is a growing gap between them and the smaller companies that... either put investment plans on hold or consider shifting investments to other more stable and predictable markets."
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