For decades, top American companies have viewed China as a money spinner. They trumpeted about hundreds of millions of consumers, called this “one of the greatest opportunities” and predicted that this would be “China's century.”
Now, after recent visits to Japan, these executives are offering a more sober view. Western companies operating in China are facing pressures unimaginable just a few years ago. The country's economy is in decline and its relationship with the United States is strained. Three years of border restrictions and effective commercial blockades have created rifts that have yet to heal.
Nine months after China's economy restarted after the coronavirus pandemic subsided, companies are facing a harsh reality. China's $18 trillion economy is fraught with danger, but it remains impossible to ignore and difficult to retreat from. A setback could mean a loss of advantage against future global competitors. Many Western companies still see business in China as a long-term bet, but the rewards are tempered by the risks.
“There's a recognition among CEOs that some risks need to be mitigated,” said Myron Brilliant, senior counselor at Dentons Global Advisors ASG. “They don't want to ignore the market, but in this environment everyone's eyes are wide open.”
The list of worries is long. Police raids on Western companies, high fines, failed deals, regulations restricting data transfers, and extensive anti-espionage laws have increased the cost of doing business. Other risks are known as gray swans. This is a rare but not unimaginable event: another pandemic, more economic sanctions, open conflict across borders. This concern further confirms what U.S. Secretary of Commerce Gina M. Raimondo recently described as a sentiment among U.S. businesses that China is “uninvestable.”
The fallout could be rapid. This week, Apple's stock price fell 6%, wiping nearly $200 billion from its market capitalization on reports that the Chinese government is banning iPhone use for employees of government agencies and other state-run organizations. .
The deteriorating economic outlook has added to the concerns of businesses, making it difficult to justify further capital investment in the country. After three years of closure, foreign company leaders are finally starting to visit Chinese employees. Many people expected the economy to recover.
Instead, some executives returned home worried that Chinese officials were overconfident in their ability to cope with their country's economic downturn. Privately, business leaders are alarmed by the drying up of investment from Chinese companies. Why, they ask, should we pump money into China if China's private sector doesn't trust the economy?
“The conversation about China in corporate boardrooms is inexorably shifting toward more caution,” said Jude Blanchett, a China expert at the Center for Strategic and International Studies in Washington. He said the reason for this is the economic slowdown, as well as “Beijing's erratic and punitive regulatory actions, moves toward totalitarianism, and U.S. government actions to divert technology and investment to other markets.” Ta.
Complicating matters is the attitude of U.S. officials, whose sentiments toward China are tilted. Pursuing a business-as-usual approach to China could lead to calls from U.S. lawmakers. “If you say something positive about China, you get noticed,” said John Mills, a spokesman for Cummins, a 100-year-old American multinational that makes engines.
Scrutiny comes with reputational and legal implications. The House Select Committee on Competition with China is chaired by Rep. Mike Gallagher, Republican of Wisconsin, and has subpoena power and political influence. And the committee is not alone in calling for an end to the partnership with China.
Ford Motor Co.'s deal to license battery technology from a Chinese company for its Michigan plant was a “Trojan horse” for the Chinese Communist Party, Virginia's Republican Governor Glenn Youngkin said, adding that Ford's The company was blocking the establishment of factories in the state. .
Florida Republican Sen. Marco Rubio said Moderna's decision to research, develop and manufacture mRNA medicines in China is “a betrayal of American taxpayers whose hard-earned funds made this technology possible.” He said it was.
and schedule Tesla's plans to build a large battery factory in Shanghai prompted Gallagher to question whether the company was dependent on “access to the Chinese market.”
Companies seek to balance political scrutiny with the belief that if they do not compete with or cooperate with Chinese companies on research and innovation, they risk losing out to and falling behind Chinese competitors in global markets. It is said that
Instead of expanding its operations in China and risking criticism at home, Ford recently forged an alliance with China's Hyundai Amperex Technology Company Limited (also known as CATL), allowing Ford to The company was able to own and operate a battery factory in Michigan. The automaker said the agreement will create 2,500 jobs. The $3.5 billion plant will use technology from CATL, the world's largest electric vehicle battery maker, and will “allow us to build more EVs, faster,” said Ford Executive Chairman William Clay.・Mr. Ford Jr. said.
Nevertheless, Republican lawmakers say they are investigating the deal over concerns that CATL may have ties to China's western Xinjiang region, where the United Nations has identified systematic human rights abuses. Ta.
When it comes to pharmaceuticals, China wants companies to change the way they operate by collaborating with local scientists and investing in research, rather than simply bringing foreign-developed medicines to market. It makes that clear.
For Moderna, China's large patient base and rich resources for pharmaceutical research and clinical trials will likely help Moderna reject China's request to hand over intellectual property behind its coronavirus vaccine This likely contributed to the decision to form a partnership less than a year after it was reported that the company had done so. . Moderna faces declining demand for its vaccine, its only commercially viable product, but its China location gives it access to other companies using mRNA technology in one of the world's largest drug markets. It will be possible to work on vaccines.
The government controlled by Xi Jinping has sharply drawn China's focus domestically during his decade as supreme leader. “Structurally, the position is very different from previous administrations,” said Helen Cheng, managing partner at LEK Consulting. “The rise of China is very important, but what does it mean for Western companies?”
Even if management wants separation, as some U.S. lawmakers have argued, many companies argue that it is unreasonable. Cummins' Mills said cutting the company's China operations was not feasible. The company, which makes engines, generators and auto parts, has 21 factories in China and generates about one-fifth of its profits there.
“Our success in China has led to global success and job growth in the United States,” he added.
It's a sentiment shared by other companies as well.
“I think what's important for the American people to understand is that we have to find a way to make the relationship work with China,” said RTX, the aerospace and defense contractor formerly known as Raytheon. said Greg Hayes, chief executive officer. he told CNBC earlier this year. Hayes said it was not practical to withdraw the company's supply chain from China, where it has two subsidiaries that make commercial engines, aviation systems and passenger cabins. This market is “too big, too important, and too necessary for the U.S. economy.”
But fierce competition and rising geopolitical, strategic and financial costs of doing business have slowly eroded the excitement American companies once had about China.
And as China faces the biggest threat to its economy in decades, many multinational companies are looking for growth in other parts of the world, a former U.S. Chamber of Commerce executive said. said Mr. Brilliant of Dentons Global Advisors ASG, who served as vice chairman. .
“With so much uncertainty surrounding the direction of China's economy, it would be a mistake for business executives to sit back and watch,” he said.
