WASHINGTON (AP) – Some of the world’s biggest brands are moving manufacturing to friendlier countries amid concerns over security controls, protectionism and uneasy relations between China and Washington. There is no shortage of tough news for the Chinese economy, whether it is considering or taking action.
Other companies considering include Adidas, Apple and Samsung.
But as a tumultuous 2023 for China’s economy comes to a close, there was at least one bright spot for Beijing when it comes to overseas investment. Fast-food chains in the United States have decided that the market, which has a population of 1.4 billion people, is too good to pass. Up.
KFC China’s parent company opened its 10,000th restaurant in China last month and aims to be within reach of half of China’s population by 2026. McDonald’s plans to open 3,500 new restaurants in China over the next four years. And Starbucks has invested $220 million in a manufacturing and distribution facility in eastern China, its largest project outside the United States.
This is certainly not what Chinese President Xi Jinping had in mind when he made the case to U.S. CEOs about turning around China’s “super-large market” during a visit to San Francisco for a world summit last month. is. While the U.S. government has curbed exports of computer chips and other advanced technology, investments in fast food and other consumer goods do not fit into China’s own blueprint for modernizing its economy.
Phil Levy, chief economist at supply chain management firm Flexport, says that when trying to interpret signals from chains like McDonald’s and Starbucks, “look at what the industry is. “It’s not a high-tech burger.”
And while some U.S. companies have increased investment in the world’s second-largest economy, overall overseas investment has begun to decline this year. Net foreign direct investment into China fell to a deficit of $11.8 billion in the July-September period, the first quarterly deficit since the Chinese government began releasing statistics in 1998.
As tensions between China and its Western trading partners increase, many multinational companies are moving investments elsewhere, such as Southeast Asia and India, or repatriating profits. This deprives China of a key driver as the economy has yet to fully recover from the disruption caused by the pandemic and the real estate crisis that has held back growth.
The Chinese government places some of the blame on U.S. government policies.
Commerce Department Spokesperson Shu Jueting recently said, “The US side has repeatedly politicized economic, trade, and technological issues, overextended the concept of security, abused export control measures, and threatened to limit its own companies’ trade to China.” “The government is restricting investment and forcing companies to respond.” Give up opportunities in the Chinese market and win-win cooperation opportunities. ”
A study released in September by the U.S.-China Business Council, which represents U.S. companies in China, suggested that uncertainty is taking a toll. 43% of members said the business environment in China has worsened over the past year, and 83% said the business environment in China has worsened. They were not as optimistic about China as they were three years ago. 21% said they were investing less in resources in China, while only 10% said they were investing more.
Studies of European and Japanese companies show similar results.
While the Chinese market is huge, it is also in a difficult situation. By June, the last time the government released data, the unemployment rate among Chinese youth had risen to more than 20%. Home prices are falling and the stock market is down nearly 15% since the summer. As a result, many Chinese people feel anxious about their spending.
Still, being bullish on China could be a profit-boosting strategy for the fast-food industry as other industries seek to hedge risks and disentangle themselves from China.
McDonald’s CEO Chris Kempczinski said the Chicago-based company announced in November that it was “capturing increased demand and leveraging the long-term potential of a fast-growing market.” “We believe now is the right time to simplify the structure, given the great opportunity for further benefits.” The company had increased its ownership from a 20% minority stake in McDonald’s licensed restaurants in China, Macau and Hong Kong to 48%.
Burgers and lattes don’t cause the same friction that other tech industries have in the complicated U.S.-China relationship. These tensions are a sign of increased efforts to counter China’s growing military influence and threats to neighboring countries, improve the country’s treatment of Uyghurs and other ethnic minorities, and crack down on intellectual property theft. It continues under President Joe Biden, who was sworn into office. .
Relations reached their lowest point in February when Mr. Biden ordered the shooting down of a Chinese reconnaissance balloon that had passed over the U.S. mainland. The Chinese government, which claims Taiwan as its own territory, also protested the island’s President Tsai Ing-wen’s stay in the United States earlier this year. China has responded to new U.S. restrictions on exports of cutting-edge computer chips and their manufacturing technology by banning critical goods such as graphite, gallium, and germanium, all of which are used to make semiconductors, solar panels, missiles, and radar. Japan has set its own restrictions on the export of metals).
Relations appear to be stabilizing somewhat as 2023 draws to a close, as evidenced by Biden and Xi’s meeting outside San Francisco last month. But since then, Biden’s top advisers have said they have no plans to change the strategy of tightening regulations and blocking U.S. high-tech investment in China, citing national security needs.
Former President Donald Trump and Biden, the 2024 Republican presidential front-runner, are concerned about their dependence on potential adversary China for supplies of critical materials used in many high-tech products. Both have sought to reduce U.S. dependence on Chinese factories and have encouraged companies to relocate from China to other countries, known as “friendshoring.”
Still, Biden administration officials say they don’t want to completely separate the world’s two largest economies.
“Risk aversion, yes. Decoupling, no,” said Nicholas Burns, the US ambassador to China, at a recent event in Washington. “We want to continue our major trade and investment relationship with China, but not in military technology, where China could potentially leapfrog us over the next decade.”
Rosemary Coates, executive director of the nonprofit Reshoring Institute, said the decision to expand or downsize is relatively easy for companies like McDonald’s and its fast-food rivals.
Franchises “can open or close,” Coates said. “We’re not investing in a car factory or some type of machine shop.”
China’s vast market is vital to many foreign companies. At its annual Investor Day gathering this month, McDonald’s executives pointed out that 70 million of the 150 million customers in the company’s customer loyalty program are in China.
KFC China announced that its new store growth rate over the past five years has averaged more than 22%. Popeyes Louisiana Kitchen chain relaunched its brand in China in August with a flagship restaurant in Shanghai and plans to open 1,700 stores over the next 10 years.
But despite the promise of China’s huge market, there are other reasons why U.S. companies should think twice about expanding there.
In July, the United States advised Americans to reconsider traveling to China, citing arbitrary law enforcement, exit bans, and the risk of illegal detention. Commerce Secretary Gina Raimondo urges Chinese leaders to stop U.S. companies from investing in their country unless they address complaints of corporate raids, unexplained fines and worsening conditions caused by unpredictable official actions. I warned you that this is a possibility.
While Beijing says it is keen on foreign investment, it has not signaled any potential changes to trade, market access or other policies that would irritate the U.S. government or other trading partners.
“Where do you draw the line?” asked Mr. Levy, who served as a White House economic adviser in the George W. Bush administration. “Some might say, “If I want to source sensitive computer chips, I need to do it from a place I really trust. But where do you draw the line for things in between, like auto parts? What about ball bearings?”
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Mr. Kürtenbach reported from Bangkok. Associated Press writer Ken Moritsugu contributed to this report from Beijing.
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