Foreign firms lukewarm about China’s relaunched Go West strategy
June 30, 2020 Category Foreign trade, Weekly
China’s latest blueprint to stimulate its western region is receiving a lukewarm welcome from foreign firms, many of which are suffering from “regional development plan fatigue”, the South China Morning Post reports. Referred to as the Go West strategy, the Chinese government attempts to corral investment into its lesser developed inland regions, as it seeks to add an engine for economic growth. The Go West strategy is also complementary to its Belt and Road Initiative in Central and South Asia. “The strategic importance of the western regions was elevated after Covid-19. China wants to strengthen its influence in Central, Western and Southeast Asia for national security reasons and to protect China’s central position in global supply chains,” said Dan Wang, Analyst at the Economist Intelligence Unit in Beijing. But the plan is still vague and has failed to capture the imagination of foreign firms in China, as many are distracted by the global economic downturn, a prolonged recovery from the coronavirus outbreak, and the risk of new outbreaks. “Unless you follow these issues really closely it is hard to understand what differentiates them from any of the other development initiatives that have come before, a lot of which has been very disappointing,” said Allison Sherlock, China Researcher at the Eurasia Group. “Investors have got regional development plan fatigue at this point.”
The plan is the latest in a succession of efforts to revive the economically underdeveloped regions stretching from Inner Mongolia in the far north to Xinjiang and Tibet in the far west, following the first western development plan 20 years ago. China’s industrial and commercial hubs are still mainly located along the coast, even as the territories designated by the government as “western regions” cover almost three-quarters of China’s land mass and a third of its population. But analysts and business figures are skeptical as to whether it has resonance among international firms as yet.
“This plan sounds interesting. But my first thought was: what’s that?,” said Paul Sives, Chairman of the European Chamber of Commerce in China’s Southwest Chapter in Chengdu, the capital of Sichuan province, which is one of the 12 provincial economies covered. Sives presides over a Chamber with 178 members, largely split between Chengdu and Chongqing. He said that among foreign firms the plan is not a topic of conversation. “At recent meetings with officials there has been a definite push to announce attractive policies for foreign investment. But in this current situation of Covid-19 and with the global economic situation being what it is, wouldn’t it be better to focus on the businesses that are already here and ensure that they stay here, rather than looking for foreign investment, which is very unlikely to come right now?,” Sives added.
The Samsung foundry in Xian in Shaanxi province suggests that some local governments are aware of the need to take care of their current investors, as well as attracting new ones. In April, China allowed 200 of the firm’s South Korean employees to return to Xian to continue expanding a memory chip plant, after agreeing to some exceptions to the sweeping coronavirus-linked travel ban for some vital technical staff. Sives said that European firms in the southwest have not had the same treatment, and that he had written letters to the Mayors of Chongqing and Chengdu, along with Sichuan’s Governor, to suggest that this issue should be a priority, rather than “pushing hard for new foreign investment in an economic environment that is falling apart”. Chapters of American Chambers of Commerce in China declined to comment on the plan, saying that their priorities are elsewhere, given that the U.S.-China rivalry continues to deteriorate, with American businesses caught in the crossfire, the South China Morning Post reports.
Those who have studied the Go West plan, suggested that it is likely to be met with a mixed response among international firms, some of which have been chastened by previous ventures outside traditional business and export hubs in the east. “European companies will contribute to the Go West campaign only where it aligns with their long-term business interests,” said Joerg Wuttke, President of the European Union Chamber of Commerce in China. “That’s a ‘yes’ for industrious and innovative up-and-comers like Sichuan and Chongqing, and a ‘no’ for areas that lack the stability that major investments require.” Wuttke added that rather than shooting for minor changes that “may result in a small increase in foreign investment”, Beijing should implement “concrete measures to create an open and fair business environment that would have a far greater impact”. “The same is true for all of China’s major regional development plans, whether it is the new announcements on the Hainan free trade zone, or the perennial efforts to rejuvenate the northeast,” he said. “European companies invest for the long-haul, and will commit to a region based on long-term factors, not short-term subsidies and tax deferrals.”
Foreign companies are also worried about the effect of U.S. sanctions imposed for alleged human rights violations in Xinjiang, a large area targeted by the Go West campaign. The textile industry fears that companies found to be producing garments using cotton grown in Xinjiang, where most of China’s crop is harvested, and linked to alleged forced labor, could be subjected to punitive actions, including export controls, an industry source told the South China Morning Post.
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