West’s de-risking starts to bite China’s prospects

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  • China recorded a quarterly foreign direct investment deficit.
  • Execs worry about China’s slowdown, geopolitics, regulations
  • The trend may weigh on the yuan, eliminating growth potential-analyst
  • Focused on China, the acquisition fund raising data has stopped

BEIJING/HONG KONG November 28, 2011 Jordan England, the head of a US furniture company, said his company’s Chinese suppliers are the best in the game, but geopolitics and a slowing economy have pushed him to source more products from Southeast Asia, Eastern Europe and Eastern Europe. Mexico.

“I’m looking to get away from it[China],” said England, CEO and co-founder of Florida-based Industrial West.

“It’s always been ‘China plus one,'” he said, referring to the diversification strategy that many businesses have begun to implement after Washington imposed trade tariffs on Beijing in 2018 to ensure they were not completely dependent on Chinese suppliers.

Now, he added, “it’s like ‘Plus-10’ and then China,” the latter of which provides half of the Industrial West’s products and is getting more organized.

Foreign investors have largely turned sour on China this year, but data released last month provided clear evidence of the negative impact risk-hedging strategies are having on the world’s second-largest economy.

Activity surveys have shown production. Unexpectedly entered into a contract In October, exports accelerated Decline. China recorded a quarterly deficit for the first time in history Foreign direct investment In July-September, the flow of capital indicates pressure.

Reuters graphics

Nicholas Lardy, a senior researcher at the Peterson Institute for International Economics, noted in a note that the new data suggests that foreign companies are not only scrambling to reinvest earnings, but are also selling existing investments and repatriating their funds.

This approach could further weaken the yuan and undermine China’s economic growth potential, he added.

“In recent years, China’s foreign investment volume, volume and growth rate are relatively high,” said He Yadong, spokesman for the Chinese Ministry of Commerce, in response to questions from Reuters.

Long-term prospects

Businesses have long-term concerns about geopolitics, tightening regulations and a more level playing field for state-owned companies. But for the first time in four decades since China opened up to foreign investment, executives are concerned about the long term. Growth prospects.

A survey released by the Conference Board last week found that more than two-thirds of CEOs said China’s demand had not returned to pre-Covid levels, and 40% said capital investment in the country would continue to decline. In the next six months and expect to reduce the same amount of work.

China is outwardly confident about growth despite a global economic slowdown, according to policy advisers. Support the target In the year The country plans to expand its GDP by 5% by 2024 and double its economy by 2035.

But the UK is concerned about how its Chinese suppliers, who produce for the domestic market, will cope with the country’s tough property market, he said. Failure.

“I am concerned that these factories have gone from 500 workers to 200, to 100.

Is it open for business?

Premier Li Qiang is announcing China. Open for business to foreign investors after the outbreak was greeted with skepticism in some Western boardrooms given its broad scope. Anti-espionage law, Invasion Organizations that work with consultants and diligence and Exit restrictionsBusinesses speak.

Li is expected to make a similar call next Tuesday at the country’s first China International Supply Chain Expo.

“Foreign business executives here are eager to continue in China,” said Amcham President Michael Hart. But boards in America are wary.

European companies have raised Fair competition concerns Regarding government-led loans to Chinese manufacturers, Noah Fraser, managing director of the China Business Council of Canada, said there is still “bad blood”. arrest Two Canadians from 2018 to 2021.

Reuters graphics
Reuters graphics

In private equity, Asia-focused funds have been allocating capital to China, according to data from Priqin. In the year In the year China-focused buyout funds raised almost zero in any currency in 2023, compared to $210 million and $13.2 billion in 2022. In 2019, before the outbreak.

Fred Hu, founder of Primavera Capital, cited increasing macroeconomic uncertainty, a “gloomy capital market outlook” and past concerns. Control leaks on high-growth industries such as technology and education.

Technology companies and other private enterprises need to be able to use public markets for funding and liquidity, so the current market situation in China has serious consequences for the real economy, he said. Asia, Australia and Europe.

Despite the challenges, foreign investment flows are not unidirectional. Many firms, especially in the retail sector, still target the huge Chinese market. McDonalds (MCD.N) He said he was hit last week. Agreement To increase the share in Chinese business.

An executive at the European hotel chain, who spoke on condition of anonymity because of the sensitivity of the topic, said his company is now happy to reinvest its profits in China.

“We know what’s going on politically and yes economically,” he added of the latest information. “There was nothing to be proud of.”

“It’s slow, but just taking a ‘wait and see approach’ is warranted.”

Reporting by Joe Cash and Ellen Zhang in Beijing and Ken Wu in Hong Kong; Additional reporting by Eduardo Baptista and Don Durfee in Beijing; Graphics by Kripa Jayaram; Writing by Marius Zaharia; Editing by Jamie Fried

Our standards: The Thomson Reuters Trust Principles.

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Joe Cash reports on China’s economic affairs, domestic fiscal and monetary policy, key economic indicators, trade relations and China’s relationship with developing countries. Before joining Reuters, he worked on UK and EU trade policy in the Asia-Pacific region. Joe studied Chinese at Oxford University and speaks Mandarin.

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