Is Corporate America starting to break up with China, or is Wall Street bullish on Beijing? Both things can be true at the same time. The research suggests businesses are decoupling and looking to other parts of the region to manufacture their products. But the data is also showing that investors are pouring money into the world’s second-largest economy as the situation stabilizes in the aftermath of the Coronavirus pandemic. While protectionists and critics might believe this is a positive development, it might not be as easy as breaking open a fortune cookie. China will not go down without a fight, even if that means being relatively pro-market.
Not Made in China
According to a new Qima study of 200 companies, 95% of respondents in the U.S. are considering adjusting suppliers that are not located in China. The same survey reported that about half of the participants in the European Union had immediate plans to change their sourcing in China. The poll noticed a sharp increase in demand for non-Chinese goods among large American businesses.
The quality control and supply chain audit company’s findings are comparable to other studies. For example, the American Chamber of Commerce in Shanghai reported that fewer than half of its members are thinking about relocating their manufacturing facilities outside China. A separate American Chamber of Commerce study of U.S. firms based in China found that one-third were considering postponing or cutting investments this year, and 16% were in the process of modifying their supply chains outside of the country.
And this was before a couple of bats (allegedly) changed our world forever.
While it is easy to blame the Coronavirus pandemic for the shift in attitude, the “Not Made in China” sentiment has been the trend for the last couple of years. As Liberty Nation has reported, U.S. businesses have been considering making a swift exit out of China due to tariffs and higher labor costs. American enterprises are either heading back home or looking into other foreign markets with low labor costs, like Vietnam or Thailand.
Indeed, the U.S. has immensely benefited from trade with China, but the writing is on the wall that consumers no longer want Chinese-made goods. And they will vote with their dollars. But it may not be as easy as “flipping a switch,” warned Hans Till, a sourcing consultant in Hong Kong, in an interview with the South China Morning Post.
“Not many companies actually have the vision to have done this over the long term, you cannot do it overnight,” Till told the newspaper. “It is possible, but not from one day to the next. These days everything is in a mixer, people are uncertain about supply chains, but very few have a strategy.”
That said, American investors may still be bullish on the red dragon.
Getting Drunk on Baiju
U.S. and other foreign investors are renewing their bullish stance on China again in the aftermath of the virus outbreak, at least according to the latest government data.
In June, foreign direct investment (FDI) surged 7.1% to $16 billion, the Ministry of Commerce reported. FDI from the U.S. alone climbed at an annualized rate of 6% last month. Chinese officials warned that there will still be plenty of uncertainties surrounding foreign investment in the second half of 2020. However, President Xi Jinping assured a group of multinational business executives that Beijing would provide a better environment for investors, telling them in a letter that “you’ve made the correct choice.”
FDI into China had been booming in 2019, despite U.S.-China trade tensions. It was not until the COVID-19 public health crisis in January that foreign investment cratered to a one-year low.
As part of the phase one trade agreement with Washington, Beijing has opened many industries that had been previously closed to foreign investors. President Xi has continually promised additional market reforms to attract foreign investment, which is something he has been clamoring for at a time when the nation is struggling to stay afloat and keep its Ponzi scheme economy going.
Crisis + Opportunity = Crisortunity
The consensus on Wall Street is that China will be great again as it hits the reset button on the economy. On the surface, this appears to be correct analysis. The gross domestic product (GDP) came in better than expected in the second quarter, industrial production is up, unemployment is down, and manufacturing and non-manufacturing purchasing managers’ index (PMI) readings are rebounding. The People’s Bank of China (PBoC) recently stated that additional stimulus would be unnecessary for the rest of the year. Does this mean Beijing is out of the woods? Hardly. The data underneath the surface highlight an alarming predicament for a country that has relied too much on debt, the zombification of private markets, and neo-Keynesian interventions. If the world abandons China, you might as well euthanize the paper tiger, as it will roar no more.
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