Multinationals Favor China as World Economy Begins to Revive

A recent survey by the American Chamber of Commerce in China reveals that over 60% of U.S. firms choose the country as the first priority, or at least one of the top three priority investment destinations.

Similar findings appear in the business confidence survey conducted by the EU Chamber of Commerce in China, with over half of the polled companies planning to expand their business in the country.

Over the past 30 years or so, the pattern of the global supply chain presents typical regional characteristics with the United States, China, and Germany as the three focuses in the Americas, the Asia-Pacific region and Europe respectively. Of the three, China features multiple advantages in attracting and hosting those corporate entities involved in the global supply chain.

On the demand side, the Chinese market is huge and attractive for multinationals. They are convinced of the country’s potential as a major consumer market for most of consumer products with advanced technologies, such as robotics, autonomous vehicles and various smart devices.

With a middle-income population of nearly 350 million and with great growth potential, China is likely to be a company’s biggest target market at least for the next 20 years.

When it comes to production activities and operational issues, the essential supporting activities in China are another advantage to attract the global supply chain. When multinationals decide to settle here, they are valuing not only the comparative advantages of China in performing a single production task, but also the vital supports from related local industry and infrastructure projects not necessarily easy to find in other countries.

As manufacturers have been re-examining their supply chains recently, most multinational companies operating in China are focusing on operational improvements, digital transformation, and strategic supply chain transformation by investing in new technologies to automate manufacturing and improve competitiveness. China is well known as a pioneer in the application of new digital technology.

In addition, China is ahead of the global curve when it comes to economic recovery after months of COVID-19-related lockdown. The IMF’s latest World Economic Outlook growth projections released in late June suggest China is the only economy in the world likely to enjoy positive growth in 2020. In June, the Chinese manufacturing purchasing manager index (PMI) was 50.9%, or 0.3 percentage points higher than the previous month, revealing a steady recovery underway.

The non-manufacturing business activity index was 54.4%, or 0.8 percentage points higher than the previous month. Non-manufacturing business activities have now been on the rebound for four consecutive months.

The business environment is becoming more favorable as the country has adopted various policies to attract multinational companies. According to the IMF report, over 50% of multinationals believe that the investment environment has remarkably improved.

This is quite true. Among others, the building of the Hainan Free Trade Port provides a better business environment and offers great development opportunities for multinationals. Moreover, the 2020 version of the negative list for foreign investment, coming into effect on July 23, is shorter, thus improving the level of openness in the services, manufacturing and agricultural sectors, compared with last year’s list.

Furthermore, after years of great efforts of opening-up and reform in the financial sector, China has achieved great results. This is recognized in the latest Global Financial Centers Index (GFCI 27), in which Shanghai ranks No. 4, after New York, London and Tokyo.

This is a vital step in building Shanghai into a global financial hub, the early harvest of which will be seen in 2020.

China has been the world’s factory for almost 30 years. With its steady economic growth and stability, the huge opportunities and development potentials will continue to make it the most attractive destination for multinationals.

He Shuquan is a professor at the School of Economics, Shanghai University; a member of  Fudan University-Jinguang Group Think Tank.