Chinese are leaving China
2022.12.21 00:49
Chinese are leaving China
Budrigannews.com – Western executives now find China to be a source of stress. Yet, evacuating supply chains and dismissing the purchasing force of 1.4 billion individuals is hard. The good news is that local Chinese partners can resolve the issue by moving themselves, so U.S. and European CEOs do not need to take drastic action. One illustration of this is the expanding presence of Tesla (TSLA.O) in Mexico.
Executives from other countries have had a difficult time coping with China’s zero-covid policy, rising labor costs, and tariffs from the United States. The potential consequences of sanctions in the event of an invasion by the People’s Republic of China into Taiwan further complicate matters. However, Beijing’s renewed effort to attract foreign investment and existing economic interests both support staying put. The Organization for Economic Co-operation and Development (OECD) reports that in the first half of 2022, China continued to account for a sizable 16% of global inflows of foreign direct investment.
Instead of operating their own local operations or dealing with other foreign companies, Western businesses in the Middle Kingdom overwhelmingly rely on local suppliers. For instance, a senior Tesla leader uncovered in August that its Shanghai manufacturing plant was 95% provided by homegrown makers. Local partners may be able to provide Western groups with a painless solution to their stay-or-go dilemma due to their prominence in the supply chain. Companies in the electric vehicle, computer, and mobile phone industries in China are increasingly looking to replicate their operations in markets that are friendlier and less expensive. In the event that foreign companies leave the People’s Republic, building factories elsewhere provides a safeguard. From the perspective of Western businesses, it is an easy way to relocate without having to start from scratch with a supply chain.
One of the most popular destinations is Mexico, where a trade treaty with the United States enables tariff-free exports. Other popular destinations include Vietnam in Southeast Asia and Hungary in Eastern Europe. According to analysts at Hangzhou-based Zheshang Securities, at least 25 Chinese manufacturers that supply Tesla with parts have announced plans to invest in Mexico as of September. This includes JL Mag Rare-Earth (300748.SZ), which is making an investment of $100 million in a recycling facility that converts scrap alloy into permanent magnets.
More Microsoft may buy Netflix
Beijing might even be able to join the movement. When officials started to worry about capital flight, a previous version of China’s “going out” policy, which was started at the turn of the century to encourage state champions to travel abroad, was abruptly stopped. That is generally a gamble. However, the government may be forced to give its blessing if Chinese suppliers now begin to increase their foreign investment in order to maintain their most important customers.
According to a summary of the annual Central Economic Work Conference, which senior Communist Party leaders held from December 15 to December 16 to discuss the country’s economic priorities in 2023, China will make greater efforts to attract and utilize foreign capital as well as expand market access.
