The CEOs of some of America’s biggest companies are in China this week to take the pulse of one of their top markets after the country reopened following nearly three years of pandemic restrictions.
The CEO parade in the world’s second largest economy highlights the importance of China for many blue-chip firms. But what executives are finding as they touch down is a more complex business environment characterized by a crackdown on international consulting firms, geopolitical tension and an uncertain investment outlook.
Until December, China was largely sealed off under stringent “zero-Covid” restrictions, escalating calls in the international business community to reduce their reliance on the country. Those limits are gone, kicking off an economic recovery in the first quarter that now appears to be sputtering.
To drum up business, Chinese leaders have urged foreign companies to invest more in the country, promising them an open and level playing field.
That theme was apparent Tuesday, when Musk met with China’s Foreign Minister Qin Gang, who called for “a healthy” relationship with the United States, saying it was “in the interests of both countries and the world.”
Musk backed the view, saying Tesla was against the notion of “decoupling” with China.
“The interests of the United States and China are intertwined like conjoined twins,” he was quoted as saying by the foreign ministry. Musk was later also quoted by China’s commerce ministry as saying relations between the two countries were not a zero-sum game — where for one side to win, the other must lose.
Tesla did not respond to a request for comment about Musk’s visit, and the billionaire’s Twitter account was unusually quiet following his arrival.
Tesla has been playing defense in recent months, cutting prices after losing market share to competitors in China, such as Warren Buffett-backed BYD (BYDDF). Those reductions have kicked off a price war in China’s electric vehicle sector, the world’s biggest market for such cars.
Calls for clarity
For executives, the visits are a chance to reconnect with employees and rub shoulders with government officials for the first time in years. Dimon’s visit to mainland China is his first in four years, according to a person close to the bank.
The Wall Street boss met with Shanghai’s Communist Party chief Tuesday, where authorities say he was told the government hoped that JPMorgan would use “its international influence” to promote investment in China’s financial hub.
Dimon was later quoted in a Shanghai government statement as saying the bank would serve as “a bridge” for global companies to better understand and invest in the city.
But dealing with China has “become a far more complex situation,” he acknowledged in a Bloomberg TV interview Wednesday.
Over time, “there will be less trade” between China and the United States, Dimon predicted. “This is not decoupling, this is de-risking.”
In recent years, Western companies have been under pressure to reduce the risk to their businesses by diversifying supply chains beyond China. That’s been driven by a number of factors, including fears that Taiwan could be invaded by the country and ongoing tension between Beijing and Washington.
Apple, long the poster child for US investment in China, has been doing just that.
The visits coincide with a crackdown on international consulting firms that has alarmed foreign businesses.
This month, state security authorities said they had raided several offices of Capvision, an expert network with headquarters in Shanghai and New York. The announcement came after Chinese officials closed the Beijing office of Mintz Group, an American corporate due diligence firm, and questioned employees at the local branch of consultancy Bain.
The investigations are part of wider efforts by Beijing to increase oversight into what is deemed sensitive information pertinent to national security.
The campaign has had a chilling effect on US businesses in China, leading some to wonder “who’s next?” Michael Hart, president of the American Chamber of Commerce in China, previously told CNN. The British Chamber of Commerce in China has also said its members are feeling unsettled, calling on the Chinese government to clarify regulatory guidelines.
The uncertainty has led some firms to hold back on committing more money to China. In a British Chamber survey last month, 70% of businesses said they were “adopting a ‘wait-and-see’ approach” on decisions to invest long term in the country.
“Many companies and investors are sitting on the sidelines right now as they are still looking for more clarity around China’s economic policy, including how China will manage its relationship with the US,” said Ben Cavender, managing director of strategy consultancy China Market Research Group.
Beijing and Washington have been working to stabilize relations, but tensions remain. This month, China banned US chipmaker Micron (MICR) from selling to key suppliers in the country, citing cybersecurity risks. The move was seen as retaliation for restrictions the United States has imposed on Chinese chipmakers.
Nick Marro, global trade lead at the Economist Intelligence Unit, said business confidence was “already relatively fragile” from China’s pandemic policies, which only ended recently.
“The recent crackdowns on information providers has worsened a lot of this uncertainty,” he told CNN. “Companies are increasingly unsure of where the government’s ‘red lines’ are, and what steps they need to take to avoid falling foul of regulators.”
In some cases, though, businesses are boosting their investments.
Last month, Tesla announced a second factory in Shanghai, dedicated to the production of large-scale batteries.
Volkswagen (VLKAF) also unveiled plans to pour $1 billion into a new development center for electric cars in China. The move came weeks before shareholders called for an independent audit of the German automaker’s factory in Xinjiang, the western Chinese region that has been linked to allegations of forced labor.
Marro said the decision to reinvest in China was unsurprising
Source from: cnn.com