By Joe Cash, Ellen Zhang and Kane Wu
BEIJING/HONG KONG- US furniture company head Jordan England thinks his firm’s Chinese suppliers are among the best in the game, but geopolitics and a slowing economy have pushed him to source more products from Southeast Asia, Eastern Europe and Mexico.
“I’m looking to move away from it (China),” said England, CEO and co-founder of Florida-based Industry West.
“It was always ‘China plus one,’” he said, referring to the diversification strategy many businesses began implementing after Washington imposed trade tariffs on Beijing in 2018 to ensure they were not wholly dependent on Chinese suppliers.
Now “it’s like ‘plus-10’ and then China,” he added, with the latter down to providing half of Industry West’s products and being trimmed more.
Foreign investors have been sour on China for most of this year, but data released over the past month has provided clear evidence of the negative impact de-risking strategies are having on the world’s second-largest economy.
Activity surveys showed manufacturing unexpectedly contracted in October, while exports accelerated their decline. China recorded its first-ever quarterly deficit in foreign direct investment in July-September, suggesting capital outflow pressure.
Nicholas Lardy, senior researcher at the Peterson Institute for International Economics, said in a note the new data imply that foreign firms are not only declining to reinvest earnings, but are selling existing investments and repatriating funds.
This trend could further weaken the yuan and clip China’s economic growth potential, he added.
“In recent years, the scale, proportion and growth rate of foreign investment absorbed by China have all remained at a relatively high level,” He Yadong, a Chinese commerce ministry spokesperson, said in response to a question from Reuters.
Businesses have longstanding worries about geopolitics, tightening regulations and a more favorable playing field for state-owned companies. But for the first time in the four decades since China opened up to foreign investments, executives are now also concerned about long-term growth prospects.
A survey released last week by The Conference Board, a think tank, showed more than two-thirds of the CEOs who responded said China’s demand has not returned to pre-COVID levels, with 40 percent expecting a decrease in capital investments in the country over the next six months and a similar proportion expecting to cut jobs.
China is outwardly confident about growth despite a global economic slowdown, with policy advisers favoring a target of about a 5 percent expansion of gross domestic product in 2024 and the country aiming to double the economy’s size by 2035.
But England said he is concerned about how his Chinese suppliers that also produce for the domestic market will cope with the country’s severe property market downturn. – Reuters
