Mass exodus of foreign companies from China unlikely
May 26, 2020 Category China News Round-up, Weekly
The coronavirus pandemic is unlikely to produce an exodus out of the Chinese market, and replacing China in the global supply chain is impossible to materialize. Most European companies are in China for the local market, which is still expected to grow extensively in the coming years and decades, said Joerg Wuttke, President of the European Union Chamber of Commerce in China told the Global Times. “The market is too important for European companies to leave,” he said. The Chinese market has world-class industrial clusters, a strong mix of skilled, less skilled and highly professional labor force, and some of the best infrastructure in the world, Wuttke noted. “Yet, taking all this for granted would be a mistake.” The Covid-19 pandemic has led to some companies looking to invest their limited resources elsewhere. Few are leaving China, although even fewer will be doubling down on the market anytime soon, not only because they lack the funds at the moment, but also because diversification of supply chains is being given extra value, according to Wuttke.
The pandemic dealt a blow to transnational investment and China also faces challenges in attracting new foreign capital, Commerce Minister Zhong Shan said. But China has many edges: ample, high-quality labor, comprehensive industrial support and a market of 1.4 billion people, Zhong said. “I believe smart entrepreneurs will not give up this massive and still growing Chinese market.” Foreign direct investment in China rose 11.8% year-on-year to CNY70.36 billion in April, after dropping in the previous two months. Thanks to the quick recovery of many sectors of the economy following the Covid-19 crisis, multinational companies are seeing again the benefits of serving a strong Chinese market, with imported and locally produced products and services alike, Denis Depoux, Global Managing Director of consulting firm Roland Berger, told the Global Times. “This crisis will only accelerate the importance of China as a major outlet for many products in the consumer and business markets,” Depoux said, noting that it will also accelerate the localization of more multinational companies in China. Yet, at the same time, some supply chains may diversify their localization, as well as “relocalize” in the European and U.S. markets as a risk mitigation measure that will be demanded by their shareholders, he added.
China-EU trade ties have advanced smoothly since the bloc replaced the U.S. as China’s second-largest trading partner in 2019. Bilateral trade expanded 5.7% year-on-year to CNY1.35 trillion from January to April this year, the Global Times reports. At a press conference on the sidelines of the NPC session, State Councilor and Foreign Minister Wang Yi said that “there is no fundamental conflict of interest between China and Europe” and that China and the European Union (EU) should not be “systemic rivals,” but “comprehensive strategic partners”. The China-EU diplomatic agenda has been hit by the pandemic, but leaders from both sides “will keep in close contact in preparation for the 22nd China-EU leadership conference,” he said.
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