Recently, there have been reports of several notable individuals visiting the town, including Elon Musk of Tesla (TSLA), Laxman Narasimhan of Starbucks (SBUX), and Jamie Dimon of JPMorgan (JPM). This is after recent trips by the CEOs of Apple (AAPL), Samsung (SSNLF), Aramco, Volkswagen (VLKAF), HSBC (HSBC), Standard Chartered (SCBFF), and Kering.
The recent parade of CEOs in the world’s second-largest economy indicates the importance of China for many blue-chip companies. However, as they land, CEOs discover a more difficult economic climate marked by a crackdown on multinational consulting firms, geopolitical turmoil, and an unclear investment outlook.
China’s “zero-Covid” restrictions have been lifted, leading to an economic recovery in the first quarter that is now facing challenges. To encourage foreign investment, Chinese leaders are promising a level playing field and calling for a healthy relationship with the United States. Elon Musk recently met with China’s Foreign Minister to express his support for maintaining a strong relationship with China and Tesla’s opposition to the idea of “decoupling” with the country.
“The interests of the United States and China are intertwined like conjoined twins,” he said, according to the foreign ministry. Musk was then quoted by China’s commerce ministry as saying that relations between the two countries were not a zero-sum game in which one side must lose in order for the other to win.
Elon Musk’s recent trip to China has gone unreported by Tesla, and the CEO has been unusually quiet on Twitter since his arrival. In recent months, the company has been on the defensive, dropping prices in response to competitors such as BYD gaining market share. This has created a price war in China’s electric vehicle market, which is the world’s largest.
Executives are taking advantage of the opportunity to reconnect with staff and government officials during visits to China after years of being unable to do so. Jamie Dimon’s recent visit to mainland China was his first in four years, during which he met with Shanghai’s Communist Party chief and expressed JPMorgan’s willingness to encourage investment in the country’s financial center. While Dimon acknowledged the complexity of dealing with China in a recent Bloomberg TV interview, he also emphasized the bank’s role as a bridge for global corporations to better understand and invest in the city.
JPMorgan’s CEO Jamie Dimon predicts less trade between China and the US, prompting Western firms to diversify their supply networks beyond China. Apple has already started diversifying away from China due to tensions between Beijing and Washington. Multinational consulting firms are now facing a crackdown from Chinese state security officials, causing concerns among foreign firms. The campaign to enhance governance over sensitive information relevant to national security has created chilling effects on US enterprises in China, leading to questions about who will be targeted next.
Because of the uncertainty, several companies are delaying further investments in China. In a recent British Chamber study, 70% of businesses stated they were “adopting a ‘wait-and-see’ approach” regarding long-term investment 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.
Although Beijing and Washington have worked to improve relations, tensions remain. This month, China prohibited US chipmaker Micron (MICR) from exporting to key Chinese suppliers, citing cybersecurity concerns. The decision was perceived as revenge for limitations imposed by the US on Chinese chipmakers.
According to Nick Marro, global trade head at the Economist Intelligence Unit, business confidence was “already relatively fragile” as a result of China’s epidemic policies, which only recently ended.
“Recent crackdowns on information providers have exacerbated much of the uncertainty,” he told CNN. “Companies are becoming increasingly unsure of where the government’s ‘red lines’ are, and what steps they need to take to avoid falling foul of regulators.”
Businesses, on the other hand, are increasing their investments in some circumstances.
Tesla announced last month the opening of a second factory in Shanghai dedicated to the production of large-scale batteries.
Volkswagen (VLKAF) recently announced plans to invest $1 billion in a new electric vehicle development center in China. The decision came only weeks after shareholders demanded an independent examination of the German automaker’s factory in Xinjiang, a western Chinese area linked to charges of forced labor.
According to Marro, the choice to reinvest in China was unsurprising. He also added, “We’ve long cautioned against expectations of a wide-scale ‘exodus’ of companies fleeing China, even as business sentiment has moderated in recent years.” “This doesn’t mean that the conversations around ‘de-risking’ or ‘de-coupling’ aren’t happening, particularly at the government level. Instead, it shows how tricky these policy objectives are in practice.”
