US corporates and China hug awkwardly in Beijing
HONG KONG, March 27 (Reuters Breakingviews) - Executives from Apple (AAPL.O), Visa (V.N) and others popped up at the China Development Forum at the weekend, the country’s flagship investment conference. For many it was their first chance to physically visit the People's Republic in three years, and an opportunity to meet with newly appointed key financial officials after a big leadership shakeup. The warm public rhetoric from both sides marks a mild reset.
A toxic mix of White House sanctions and Chinese pandemic lockdowns saw foreign direct investment into the country cool sharply in 2022, tanking from a record high of $102 billion in the first quarter to a 20-year low of $13 billion in the third quarter, per an analysis of official data by the Rhodium Group. The final quarter saw a slight rebound, but American FDI into China has been slowing for years.
Despite their suspicions of the U.S. government, Chinese officials don’t want American capitalists to stop investing in the country because their firms create jobs, bring technology and best practices. If they are no longer pro-China lobbyists per se, they are a stabilising factor in diplomatic relations nonetheless. “Foreign companies are not guests, but family,” Commerce Minister Wang Wentao told the audience on Sunday.
As for the other side, bullish executives like Howard Schultz of Starbucks (SBUX.O), who is aggressively boosting store counts in his so-called second home market, need to reassure shareholders they aren’t wasting money – China has been a drag on Starbucks earnings of late. So when IMF chief Kristalina Georgieva said China’s rebound will account for a third of global growth in 2023, “a welcome lift to the world economy,” that was just what the audience wanted to hear.
However, it is not clear how long it will take for domestic consumption to revive. Although President Xi Jinping’s zero-Covid policy was largely abandoned by December, the relief has been concentrated in battered industries like restaurants and movies so far. Imports, a good indicator of domestic demand, declined 10.2% year on year in the first two months of 2023. Cognisant of this, perhaps, Finance Minister Liu Kun reiterated vague government promises to boost household incomes in his speech to the forum.
As for geopolitics, there are fewer grounds for optimism, leaving CEOs like Apple’s Tim Cook stuck on a tightrope. In public they must be as polite as possible to President Xi Jinping without drawing Congressional attention; in private they are hedging their supply chains. Anecdotal evidence suggests even in harmless industries like textiles and market research, decoupling is becoming the default American investment thesis.
That said, nothing builds confidence like profit. If China surprises by dramatically boosting internal demand, U.S. executives and their shareholders will be placated. The rest will be up to politicians and diplomats, which is not, alas, reassuring.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
Apple CEO Tim Cook on March 25 praised China for its rapid innovation and its long ties with the U.S. iPhone maker, Reuters reported citing local media reports. Cook is in Beijing to attend the China Development Forum, a flagship investment conference organised by the government and held March 25-27.
The agenda includes speeches by key Chinese officials including Vice Premier Ding Xuexiang and finance ministry chief Liu Kun as well as panels featuring foreign business executives, regulators and financial institutions including the International Monetary Fund.
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