More Japanese and German firms with operations in China expect the Chinese economy to deteriorate in 2024 than think the opposite, two surveys show.
About 39% of Chinese branches of Japanese firms said the Chinese economic situation will worsen this year while only 25% anticipated an improvement, according to a survey of 1,713 firms by the Japanese Chamber of Commerce and Industry in China. About 37% of surveyed Japanese firms said China’s economy will remain unchanged.
About 48% of Japanese firms reduced their investment or did not invest at all in China in 2023 while 15% of them boosted their investment. The remaining 38% invested in the country last year at the same levels as they had done in 2022.
Separately, 83% of the 566 German company branches said China’s economy is facing a “downward trajectory” this year, according to a survey conducted by the German Chamber of Commerce in China. About 10% do not agree with this. The remaining 7% said they don’t know.
Of those German firms in China that have bearish views on the Chinese economic outlook, 64% said it will take one to three years for China to regain a robust economic development while 22% said it will take three to five years. About 8% said it will take more than five years while 6% said it will take less than one year.
However, 91% of respondents said they don’t have plans to leave China.
About 9% said they have plans to leave China within the next two years or they are considering it. In a similar survey conducted in 2020, the figure was only 4%.
The board chairman of the German Chamber of Commerce in China – South & Southwest China, Ulf Reinhardt, said Wednesday that 2023 was a reality check for German companies in China. He said many business people thought that the Chinese economy would kick in last year but their predictions have not yet materialized.
China’s FDI
New foreign direct investment (FDI) in actual use fell 8% to 1.13 trillion yuan (US$153 billion) last year from 2022, China’s Ministry of Commerce said on January 19.
FDI utilized in the manufacturing sector decreased 1.8% to 317.9 billion yuan. FDI for the making of medical and telecommunication devices increased by 32.1% and 12.2%, respectively. The Commerce Ministry did not specify the industries that received less foreign investment.
FDI utilized in the service sector fell 13.4% to 776 billion yuan. FDI used in the construction industry grew 43.7%. FDI used in scientific and technological achievements transformation service industry increased 8.9% and that for research and development (R&D) and design service industry rose 4.1%.
FDI used in high technology sectors fell 4.9% to 423.3 billion yuan in 2023 from 445 billion yuan in 2022 although its ratio to total FDI grew to 37.3% from 36.1%.
Zhu Bing, director of the commerce ministry’s department of foreign investment administration, said on January 8 that the fluctuation of China’s FDI was wrongly described by foreign media as an “exodus of foreign capital.”
He said some foreign firms closed their mobile phone, computer and home appliance factories but others opened new high-end ones to make displays and batteries. He said some foreign firms had to diversify their new investments elsewhere as some countries imposed investment restrictions on China.
Premier’s top mission
Since China ended all its Covid rules in early 2023, Chinese Premier Li Qiang has been meeting frequently with foreign business leaders and encouraging them to invest in the country.
In a meeting with a Japanese business delegation in Beijing on Thursday, Li said China is ready to support businesses in China and Japan to enhance cooperation in multiple areas and welcomes enterprises from all countries including Japan to continue investing in China.
“The economies of China and Japan are deeply integrated, and economic and trade cooperation plays an important role as the ballast and propeller of bilateral relations,” he said.
He said the two countries should strengthen cooperation in scientific and technological innovation, digital economy, green development, medical care and elderly care, jointly ensure stable and smooth running of industrial and supply chains and achieve complementarity of a higher level and win-win results.
Political tensions between China and Japan have been heightened by several incidents last year, including the ban on exporting Japan’s chip-making equipment to China in July, the release of Fukushima nuclear plant’s diluted wastewater into the Pacific Ocean in August and the arrest of a Japanese company executive in Beijing in October.
Li also attached importance to attracting investment from Germany, which is strong at the manufacturing of automobiles and high-end machines. In his visit to Germany last June, he spent time visiting the country’s companies and business leaders.
Although German direct investment in China fell 14% to 10.31 billion euros (US$11.17 billion) in the first half of last year from the same period of 2022, its proportion in Germany’s overall FDI outflows increased from 11.6% to 16.4%, Reuters reported.
In the first six months of 2023, Germany’s FDI outflows fell to 63 billion euros from 104 billion euros a year earlier due to rising financing costs caused by United States rate hikes.
With the potential US rate cuts this year, some economists said global firms will boost their overseas investment.
Liu Jie, head of macro strategy at Standard Chartered’s China division, said in a report on Thursday that the pressure of capital outflow in China will decrease this year. She said the outflow of FDI from China will be halved in 2024 as foreign firms have already withdrawn enough money and started a net buying of Chinese bonds since last September.
The Economist Intelligence Unit (EIU) said in a research note that capital inflows in China will rebound this year but these flows will largely be concentrated in short-term portfolio capital. It said foreign direct investors will remain cautious amid challenging US‑China relations and mistrust over China’s operating environment.
White paper
Meanwhile, a new uncertainty for China to attract foreign investment has arisen as the European Union (EU) on Wednesday in a white paper asked member states to set up mechanisms to screen both their inbound and outbound investments and ban those that will lead to the transfer of sensitive technology and know-how to other countries.
In the newly-released European Economic Security Package, the European Commission (EC) said the EU already restricts the export of dual-use technologies, but there are growing concerns that some sensitive technologies and know-how could end up in the wrong hands as a result of outbound investments. Concerned countries include China, Russia and those of the Gulf Cooperation Council.
These technologies are related to four technology areas, which include advanced semiconductors, artificial intelligence, quantum technologies and biotechnologies. The EC invited EU member states to give comments on the package.
Read: An ambitious campaign to raise Chinese stock prices
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