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Monday, February 26, 2024

Foreign firms say China’s economic woes, geopolitical feuds won’t scare them off, but they’re investing less

Foreign firms are curbing their expansion plans in China amid what they expect will be an enduring economic slowdown and an escalation in US-China trade tensions, yet most of them are still opting to maintain their foothold in the vast market, according to the latest findings.

In a survey by the American Chamber of Commerce (AmCham) in South China, involving 183 respondents polled from October 9 to December 31, 49 per cent were from the US, 35 per cent were from China and the rest were from other regions, including Europe.

It said most were “optimistic about the growth of the Chinese market”, with 76 per cent planning to reinvest in China – a year-on-year rise of 1 percentage point.

Much of that optimism was driven by Chinese firms, with 89 per cent of them intending to ramp up investments, marking a 14-percentage-point annual increase. Among American firms, 63 per cent were looking to reinvest in China, down 5 percentage points.

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And there was a massive drop-off among firms from elsewhere, with only 11 per cent planning in to reinvest in China – way down from 71 per cent a year prior.

The survey also found that 90 per cent of American firms said they were not planning to decouple from China amid geopolitical trade tensions, even though they are among those most impacted.

More than 60 per cent of American firms said they had been negatively affected by tariffs both from China and the US – more than about half of Chinese firms and around 40 per cent of other foreign firms, according to the latest Special Report of the State of Business in South China.

Meanwhile, 85 per cent of US firms expected that the US-China trade dispute could continue expanding this year.

Despite Beijing’s charm offensive over the past year to woo more overseas investors, coupled with vows to address their concerns about operating in the country, the nation’s huge market is still burdened by economic risks arising from a real estate crisis, large levels of local-level debt and persistent trade tensions that have effectively crippled confidence among those investors.

According to the AmCham report, which spanned a wide range of sectors, 63 per cent of American companies intended to reinvest in China in 2024, a 5 per cent year-on-year drop.

Nearly 80 per cent of polled foreign companies operating in China had a reinvestment budget at a relatively low quota of less than US$10 million in the country this year, the report said.

The report reflected how market uncertainties and concerns about investment risks in China may persist.

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“China’s economy is expected to lose steam in 2024 and beyond, [with growth in gross domestic product possibly] dropping as low as 4.6 per cent in 2028,” said Harley Seyedin, president of AmCham in South China.

“The country is expected to face headwinds from weak productivity and population ageing.”

Meanwhile, 4 per cent of American companies said they planned to increase their investments in major projects valued at more than US$250 million, compared with 3 per cent of Chinese companies.

“US companies contribute to China’s GDP each year more than 180 times the value of the usual measure of US FDI inflow,” Seyedin said.

“This explains [why] foreign enterprises, however cautiously, continue their interest in the Chinese market in spite of continued difficulties facing all companies due to the impact of three years of Covid-19, interruptions in the supply chain, shipping-container shortages, the exorbitant cost of international travel and logistics, and anaemic world demand.”

Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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