2024-12-16 10:47:00
Once a land of easy business thanks to very low labor costs and enormous marketing opportunities, today China no longer offers the same opportunities
China is no longer the business Eldorado of Western companies. This is said by the numbers and above all by the managers themselves, worried about the trend of the Chinese economy and the policies that Donald Trump will activate. Nevertheless, Beijing continues to fuel the narrative that its market is healthy.
A recent one survey conducted by the American Chamber of Commerce in Shanghai photographed the torments of companies. Only 47% of respondents are optimistic about how business will fare in the next five years: it seems like a high percentage, but it is the lowest ever recorded by the institute.
The main factor of uncertainty is linked to the evolution of relations between the United States and China. While the recent investigation opened by Beijing against Nvidia may lead one to think of similar actions in the future, what is actually most worrying are Washington’s responsibilities. In fact, a large part of those interviewed by the Chamber of Commerce believe that in the last year there have been improvements on the Chinese side in policies towards foreign companies and greater transparency in the regulatory environment. On the other hand, US protectionism is seen as a drag: to the question “How can the US government help businesses abroad?”, 48% responded by suggesting a cut in duties on Chinese products. A scenario, the latter, which does not seem to be on the horizon. Donald Trump has already threatened new tariffs on China, with the risk of triggering a similar reaction from Xi Jinping’s government which would put US companies in difficulty.
In any case, the reduction of the preponderance of the Chinese market in the business of European companies is already a reality. According to an analysis by The Economist, Combined sales by US and European companies hit peak in 2021, bringing in $670 billionthe. Since then, they have fallen, reaching 650 billion in 2023. A deficit of 20 billion that does not appear to be able to be filled in 2024 or even in the years to come. The contraction affects companies in all sectors, from Apple to Volkswagen, from Starbucks to the Louis Vuitton group. “At this point, we should have changed the page”, the comment of a regional manager of a large company to indicate the changed context.
Once a land of easy business thanks to very low labor costs and enormous marketing opportunities, today China no longer offers the same opportunities. First of all because the economy is slowing down and the deflationary measures activated by the government do not help companies, not just foreign ones. More than a quarter (27%) of Chinese companies were in fact making a loss at the end of October. Secondly, the challenge brought to Western actors by local competitors is increasingly higher. The competition is “extreme,” new Starbucks chief Brian Niccol told investors in October. In particular, the American coffee giant was forced to cede important market shares to its Chinese rival Luckin Coffee, which today has more than 21 thousand points of sale in the country compared to “only” 13 thousand last year.
Furthermore, Western companies no longer enjoy the competitive advantage brought by technology. The products are now equivalent or even more up to date than the Chinese ones. Thus, for example, Apple must cope with the growth of Huawei and other players, whose more affordable costs are preferred by local consumers. The issue relating to cars (electric and otherwise), however, has been known for some time.
In all of this, Beijing continues to present itself as a healthy market for foreign companies. The future has never been so bright, recently announced the Council for the Promotion of International Trade, an institution controlled by the Ministry of Commerce. According to the Council, 90% of foreign companies rate their experience in China as satisfactory, if not better, and believe the economy is strong, local markets attractive and prospects promising. A scenario which, however, does not seem to be confirmed by independent institutes and managers.
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