China is looking less attractive to foreign investment
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“No matter what you may be selling, your business in China should be enormous, if the Chinese who should buy your goods would only do so.” Never did an “if only” clause carry more weight.
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In the 85 years since Carl Crow, a Shanghai-based American advertising executive, wrote these words in his book Four Hundred Million Customers, China’s population has grown by 1 billion people. Their combined spending power is now second only to that of Americans.
Yet the gulf between promise and reality in China’s fabled market haunts foreign corporations as much today as when Crow was trying to market American lipstick and French brandy to the emerging middle class of the 1930s. A host of political and regulatory issues — exacerbated by Chinese President Xi Jinping’s strict zero-COVID policies and his stance over Russia’s war in Ukraine — are conspiring to eviscerate the dreams of many multinationals.
PESSIMISM IN BEIJING AND SHANGHAI
The result is that direct investment into China by foreign companies is falling off a cliff. Joerg Wuttke, president of the European Union Chamber of Commerce in Beijing, says the unpredictability is prompting the European business community to put investments into China “on hold”.
“Many of our members are now taking a wait-and-see approach to investments in China,” he adds, citing an attitudes survey in May of the chamber’s 1,800 members. “Twenty-three per cent of our members are now considering shifting current or planned investments out of China, the highest level on record. And 77 per cent report that China’s attractiveness as a future investment destination has decreased.”
WILL CHINA REMAIN TOP DESTINATION FOR FOREIGN INVESTMENT?
All of this may portend a fundamental shift in how the global economy works. For decades, China has been one of the hottest destinations for Western multinationals seeking to offshore manufacturing operations or ramp up sales in the world’s biggest emerging market.
In 2020 it passed a milestone, overtaking the US as the world’s leading destination for new foreign direct investment (FDI), according to United Nations data. Now a reversal seems to be underway. A tally of greenfield foreign investment projects — which includes new factories and other plans announced by foreign companies — showed the lowest quarterly total in the first quarter of 2022 since records began in 2003, according to fDi Markets, a Financial Times database.