“A year ago, 60% of companies said China was the top or a top 3 investment priority and this year that’s fallen to 45%,” according to Michael Hart, president of the American Chamber of Commerce in China. “China is falling in the rankings as a place for people to invest globally. It’s still important but not one of the top destinations for the majority of companies.”
That increasingly negative attitude to the world’s second-largest economy shows both the scars from the past three years of Covid Zero and also the increasingly difficult position businesses are in trying to navigate rising geopolitical tensions. American lawmakers have been intensifying efforts to find ways to decouple the US from China as the two nations spar over issues from Taiwan to technology and surveillance.
Reflecting the decline in confidence in China, almost half of US firms which are already in the market plan no new investments, while another 9% are planning to cut investment, according to the chamber’s annual survey of its members. While the majority of companies are content to keep their presence in the market unchanged for now and aren’t looking to decouple, 12% said they were already moving their supply chains elsewhere and another 12% are considering it.
Those readings were almost double the level of even a year earlier and that change may continue to accelerate, with an important supplier to Apple Inc. saying this week that firms are likely to move capacity out of China far faster than many observers anticipate,.
For companies considering shifting investment from China, developing countries in Asia and the US were the top target destinations, followed by developed nations in Asia, Mexico and Canada.
Overall, American companies in China turned much more pessimistic over the past year, the data showed, with more than half of firms saying they wouldn’t be profitable in 2022. More than 20% forecast a loss, which would be the worst result since at least 2019, with two-thirds blaming repeated lockdowns and other Covid Zero restrictions.
“Ending Covid Zero was very important, but bringing back sentiment is not as easy,” Hart said during a briefing on Wednesday. “China’s going to have to work on a campaign to allow folks to come back, to look around and understand how important the Chinese market is and if there’s a positive business environment.”
He added that current hurdles including visa restrictions and the lack of flights need to be removed before foreigners decide to return.
At the moment, companies are mostly looking to “derisk” their supply chains by investing elsewhere, according to Hart, especially after the lockdown in Shanghai last year shut down that city for months and shuttered factories in the surrounding region which is China’s most important industrial hub.
Overall inbound foreign investment dropped sharply in the second half of last year as the increasingly strict lockdowns dragged on economic growth. The government in Beijing is clearly concerned about that and has announced that getting foreign companies to stay and attracting new investment would be a focus for this year.
However, the pipeline of new investment into China is “pretty thin” right now, according to Hart.
It generally takes two to three years for a company to make an investment, he said. However for the past three years “the door has been shut” with most foreigners unable to travel to the country, stopping that cycle, Hart said.
“We do expect to have a number of global leaders visit China this spring – that might restart this cycle but it’s going to be a two or three year period before any of those companies make a decision,” he said.
Some 46% of firms think US-China ties will continue to worsen in 2023, up from 24% the previous year, the survey showed. The rise in tensions between the US and China was the most important business challenge for companies, especially in the technology, research and development sectors due to the continued conflict over semiconductors, respondents said.
Relations with Washington have continued to spiral downward this year, with a Chinese balloon that floated over the US and was then shot down by the American military the latest flashpoint between the two nations.
Even leaving international tensions aside, firms’ outlook for the Chinese market were also more negative than in previous years, with a third of respondents pessimistic about the domestic market and the prospects for economic recovery.
The survey was conducted between mid-October and mid-November last year with 319 of the chamber’s almost 1,000 members replying.
Since the survey was conducted, the Chinese government has abandoned Covid Zero, which might improve the outlook for both American and Chinese businesses. Parts of the economy appear to be rebounding, although the housing market has remained weak and export demand is dropping, knocking away two pillars of growth in previous years.
–With assistance from Fran Wang, Colum Murphy and Daniela Wei.
#Majority #firms #dont #China #priority #investment