A broad crackdown on private enterprise, regulatory tightening, and uneasy U.S.-China relations have done little to discourage American companies from doing business in the world’s second largest economy.
In fact, Eurasia Group President Ian Bremmer says executives plan to double down on their investments.
“I talked to CEOs of Western companies literally every day, and I will tell you that on balance, the majority of them are planning on doing more business in China over the next 10 years, not less,” Bremmer told Yahoo Finance Live. “The reason for that is simple. It’s because China is on track, still to be the world’s largest economy by 2030. And corporations ultimately want to be where their markets are going to be.”
The sheer size of the Chinese market has long made it the most valuable asset for U.S. multinationals operating in the country. The International Monetary Fund estimates China will become the world’s largest economy in the early 2030s.
But those growth prospects for American companies have increasingly been clouded by geopolitical risks and a shifting domestic environment. As China’s President Xi Jinping looks to secure a third five-year term, and cement his legacy, he has reshaped the priorities of the economy under the aim of “common prosperity,” going after some of China’s biggest companies including Alibaba and Tencent.
That has coincided with slowing growth in the economy. China’s GDP expanded at 4.9% in the third quarter, dragged down in part by supply chain constraints, global energy crunch, COVID-19 uncertainty, and a debt-ridden property mark.
“China today is more economically unequal than the United States. And China is ostensibly a socialist economy. that shouldn’t be happening and Xi Jinping is trying very hard to address that,” Bremmer said. “If that means breaking some eggs, in terms of local Chinese corporations and what they are and aren’t allowed, the kind of wealth they can amass the kind of business practices that they can have for technology companies and consumer internet for video game companies… they’re going to take action. Clearly this is creating more concern about Chinese growth and the sustainability of that growth.”
China Vs USA relationship: partner or competitor?
U.S. policy against China have only added to the jitters for executives. Last month, President Biden signed a law banning imports from the Xinjiang region, where Western countries have accused the Chinese of carrying out genocide against Uyghur Muslim minorities. Intel (INTC) and Walmart’s (WMT) Sam’s Club faced backlash domestically, after Chinese users took to social media platforms calling out the companies for complying with the new import ban. A Walmart representative later denied those allegations, saying customers simply couldn’t find the products “because of a misunderstanding” of the app’s search function.
In a recent survey by the U.S. China Business Council (USBC), 45% of U.S. companies said they have felt pressure to make statements about political issues, with the pressure coming from both the U.S. and Chinese governments, as well as consumers. One-third of those who responded said that nationalism has increasingly played a role in consumer decisions, with heightened U.S.-China tensions.
China investment in the U.S. is down significantly, while U.S. investment in China continues at a slower pace as the result of an “unpredictable business environment,” according to Doug Barry, USBC senior director for communications and publications.
Yet, even with those headwinds, Barry said his members report plans to increase investments in China, because ‘they don’t want to miss out, if growth in markets slows.’
Bremmer said the White House policy is predicated on that understanding.
“The reality of U.S. foreign policy towards China is to avoid crisis precisely because our economies are enormously interdependent,” Bremmer said. “That’s not going to end anytime soon.”
Source: Yahoo Finance