China: US businesses are big in Beijing
June 11, 2020
So far, nothing has put an end to the willingness of US companies to capitalize on China's growing market: neither the trade dispute nor the coronavirus pandemic nor President Donald Trump's repeated threats to break off relations with China. According to a survey conducted by the American Chamber of Commerce in China in April, 83% of companies polled did not plan to withdraw their business. Only 9% stated that they had taken steps to leave the country, even though Larry Kudlow, the director of the US's National Economic Council, had promised to pay the costs of companies that decided to relocate back to the United States, and countries such as India and Indonesia are also offering incentives for companies to leave China and take up business there.
Several major US companies have even increased their presence in China in recent weeks, including Tesla, which sold 11,065 Model 3 cars in May and rose to the top of China's electric vehicle sales. Helmed by the entrepreneur Elon Musk, Tesla is also rapidly expanding its "Gigafactory" in Shanghai.
The automobile industry is a good tool for analyzing what US companies are doing in China — and so far it seems that most are maintaining their strategies. For example, last week the carmaker Ford announced that BYD, the world's largest manufacturer of electric vehicles, would supply the batteries for its new hybrid plug-in electric vehicle for the Chinese market, which the company is building with China's state-owned Changan Automobile. Ford plans to launch more than 30 new or revised models in China by the end of 2021, and General Motors also announced a few days ago the future intent to work "very closely" with CATL. Based in the province of Fujian, CATL was founded in 2011 but has since become the world's top manufacturer of batteries. It is currently building a giant factory in Erfurt, in western Germany.
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But it is not only in the car industry that many US companies have made it apparent that the potential for growth outweighs the geopolitical risks. The US oil giant Exxon Mobil recently announced that it would expand its business in China, as did the world's two largest retail groups: Costco and Walmart. The latter plans to double its presence in the next five to seven years by opening about 500 new stores. The fast food chain Popeyes opened its first store in mid-May and has 1,500 more to come.
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The good news for US companies is that, despite the coronavirus pandemic, Chinese consumers are spending their money again. Consumption in May was already almost back at the same level as the previous year. And, regardless of Trump's xenophobic tirades, middle-class Chinese people seem to like US brands, which many may associate with freedom and fun. At the openings of the first Popeyes and Costco stores in Shanghai, the queues stretched around the block. There might be a similar situation next year when the Californian leisure resort giant Universal Parks opens its new $6.5 billion (€7.75 billion) theme park in Beijing. Shanghai's Disneyland reopened a month ago after closing for the pandemic.
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US consumer tastes
Many US consumers buy relatively cheap products made in China. Only a few would be able to afford much-more-expensive phones made in the United States. The president of the American Chamber of Commerce in China, Alan Beebe, said China was leading the global economic recovery after its successful strategy to control the pandemic, and this was why many US companies continue to operate in China.
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Commerce Minister Zhong Shan was more direct: "Smart companies will not give up on the huge Chinese market," he said. The same can be said for Hong Kong, where there are more than 1,300 US companies. According to a survey by Hong Kong's American Chamber of Commerce, 70% have no intention of leaving.
In 2019, China alone contributed 33% to the global economy. The US was responsible for just one-third of that — half of its share from 20 years ago. China's government is working to keep its domestic market attractive to US business. The state-owned Industrial and Commercial Bank of China gave Tesla a $563 million loan, and Ford also received support to ramp up production and supply chains.
At the beginning of 2020, China's government introduced a new law to make conditions easier for foreign companies and investors and to protect intellectual property better. Now, the government is rolling out the welcome map for US tech companies.
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Few US companies are likely to want to give up on China's market and its nearly 1.4 billion potential consumers. They need them right now — not least because unemployment is on the increase in the US. Furthermore, if US companies pull their business from China's, their rivals will quickly take their place. If, for instance, the California-based chip manufacturer Qualcomm can no longer supply the Chinese telecoms giant Huawei because of the US embargo, the company will lose its market share in the short term and the United States will lose its predominance in the long term.
In view of the pandemic and the global economic situation, China will need to meet consumer demand with domestic goods and do everything to boost Chinese innovation. US companies will face tough competition.
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