Under Xi’ watch as economy wobbles, foreign investors choose to leave China in hordes
As its economy wobbles on account of property meltdown, slowing growth, rising unemployment and a weaker yuan, China desperately needs investments, but despite hard try, Beijing is not able to lure investors, rather they are leaving China in hordes
In October last year, during the Communist Party of China’s National Congress, Xi Jinping was awarded a third five-year term as China’s President, thereby, offering him a much- needed opportunity to stabilize the country’s economy facing challenges. But instead of being on the track, China’s economy continues to be precarious with foreign investors increasingly choosing to move away from the country rather than staying put there.
According to BBC, in the three months to the end of September 2023, China recorded a decline of $11.8 billion in foreign investment---the first time since records began in 1998.
American big electronic companies like Microsoft, Apple, Google, Dell, and HP have already diversified part of their operations from China to India, Vietnam, and other Southeast Asian nations.
Apple has moved out manufacturing of iPhones and other products from China to India. As per media reports, Apple has a plan to scale up production in India by over five-fold to around $40 billion in the next 4 to 5 years.
Gallup, the polling, and consulting group, is the latest American company to move out of China. According to the November 4 report of Financial Times, the Washington-based advisory group which came to China in 1993, employed dozens of people at its offices in Beijing, Shanghai, and Shenzhen, but it decided to wrap up its activities in the country.
The London-based business daily cited rising scrutiny of western consultancies and growing geopolitical tensions as the reason for Gallup’s decision to put shutter down on its operations in China.
Earlier, US-based companies like Forrester Research, a technology-focussed consultancy firm, reduced its footprint in China, while Gerson Lehrman Group, an expert network group, brought down its presence in the world’s second economic power.
Financial Review quoting the American Chamber of Commerce’s 2023 China Business Report said 40% of 325 American companies polled said they were redirecting or planning to move investment originally planned for China towards Southeast Asia or other parts of the world, while 22% said they were decreasing their investments because they were worried about deteriorating Sino-US relations and an unpredictable regularly environment under President Xi’s leadership.
Among various reasons behind the growing number of foreign companies leaving Chinese shores are: Beijing’s emphasis on national security, raids on foreign companies and strict data laws.
In its 2023 surveys of business confidence, the European Union Chamber of Commerce in China reported that a “record high 64% of respondents reported that doing business in China” has become more difficult. Between January and June 2023, as per South China Morning Post, 11% of the total European Union companies had already moved their investments out of China.
Similar diffidence has been shown by the British companies operating in China. Quoting a recent poll conducted by the British Chamber of Commerce in China, the Associated Press said 70% British companies operating in the East Asian country said they wanted “greater clarity” before making new investments.
However, not only western companies are exiting from China, Japanese and South Korean firms are also saying goodbye to the world’s second economic power. According to CEO Score, a market tracker, a total of 46 production and incorporated units whose parent companies are based in South Korea, closed their operations in China over the past six years.
From January to June 2023, South Korean investors set up only 87 new companies in China, down from 99 during the same period in 2022 when the world’s second largest economy was still following zero-Covid restrictions, the Chosun Ilbo, a daily South Korean newspaper said quoting data from the Export-Import Bank of Korea.
Noted South Korean companies like Samsung Electronics, Hyundai Motor and LG have decided to relocate their production line to Japan, India, Vietnam, and other countries.
Similarly, a sizable number of Japanese companies are relocating their manufacturing bases to Vietnam and the countries of the South Asian region. Japan has about 90% of its products manufactured abroad and of this, a large number of products are made in China.
Top Japanese multinational companies such as Toyota, Honda, Nissan, Mazda, Suzuki, Kawasaki, Mitsubishi, Toshiba, Hitachi, Sony, Nikon, Canon, and Pioneer have their bases in China. After Sony and Daikin shut down their operations in China, Mitsubishi, Honda, and Mazda have also decided to completely stop production in the East Asian country.
To this regard, Tokyo’s encouragement to the Japanese companies to shift factories out of China and back home or Southeast Asia as part of its plan to reduce dependence on the world's second economic power, is also playing on the Japanese companies’ plan to move out of the East Asian country.
Data released by Teikoku Databank, a Japanese research company, shows that between 2020 and 2022, the number of Japanese companies in China dropped from 13,600 to 12,700. This year in September, a survey of 1,410 businesses by the Japanese Chamber of Commerce and Industry in China found that a quarter showed no interest in investing in China in 2023, while 22% said they would slow their expansion.
To stem the flow of investments out of the country, desperate Beijing is feverishly appealing to foreign investors to remain in or return to China, but to no avail.
China’s crackdown on foreign tech companies in the name of President Xi Jinping’s common prosperity and Beijing’s clamp down on the free flow of financial and other business information in the name of national security, have shaken investors’ confidence about the Chinese market. They now feel doing business in China is full of risks.