Chi­nese dragon los­ing its shine for for­eign firms

The China Post - - BUSINESS -

The once ir­re­sistible al­lure of the Chi­nese mar­ket to for­eign multi­na­tion­als is los­ing some of its luster as slow­ing growth in the world’s sec­ond-largest econ­omy hits their sales.

The latest fig­ures from firms re­port­ing dur­ing the cur­rent re­sults sea­son in Europe, the United States and Ja­pan paint a pic­ture of over­seas firms fac­ing a wors­en­ing of op­er­at­ing con­di­tions in China.

Volk­swa­gen, which has in­vested heav­ily in China and has just dis­placed Toy­ota as the world’s lead­ing car man­u­fac­turer, saw sales in the coun­try — which it de­scribes as its “sec­ond home mar­ket” — fall 3.9 per­cent in the first half, its first drop in a decade.

“We are keep­ing a very close watch on global macroe­co­nomic trends,” chief ex­ec­u­tive Martin Win­terkorn said in a state­ment, “es­pe­cially where there are un- cer­tain­ties such as in the Chi­nese, Brazil­ian and Rus­sian mar­kets.”

The ap­peal of nearly 1.4 bil­lion con­sumers and an econ­omy regularly grow­ing in dou­ble dig­its has brought more than US$1.5 tril­lion of for­eign in­vest­ment to China over the last three decades.

But the eco­nomic ex­pan­sion is slow­ing — gross do­mes­tic prod­uct grew 7.0 per­cent year-on-year in April-June, match­ing the worst quar­terly re­sult since the first three months of 2009 dur­ing the global fi­nan­cial cri­sis.

Some in­vestors have long seen China as a high risk des­ti­na­tion.

Ris­ing costs for la­bor and more com­pet­i­tive mar­kets as do­mes­tic brands gain stature have trou­bled for­eign com­pa­nies in re­cent years, as well as a se­ries of anti-mo­nop­oly probes which ap­peared to tar­get over­seas firms.

“The in­dus­trial com­pet­i­tive­ness of Chi­nese en­ter­prises has im­proved, mak­ing it harder for for­eign com­pa­nies to com­pete,” Li Dax­iao, an an­a­lyst at Yingda Se­cu­ri­ties, told AFP.

‘Worse than ex­pected’

Such chal­lenges have been com­pounded by the coun­try’s slow­ing econ­omy.

Ja­pan’s sec­ond- big­gest steel­maker JFE Hold­ings low­ered its an­nual profit forecast in late July be­cause of “the eco­nomic slow­down in China and the over­pro­duc­tion of steel” in the coun­try, the world’s largest con­sumer of the me­tal.

In the United States, in­dus­trial gi­ant UTC, the maker of Otis lifts, re­vised down its earn­ings forecast for 2015 partly on the back of what it de­scribed as “a slow­ing China.”

As well as lifts, the firm makes heat­ing and cool­ing sys­tems for build­ings, leav­ing it ex­posed to a broad slow­down in the real es­tate sec­tor, which its chief ex­ec­u­tive Gre­gory Hayes de­scribed as “worse than we had ex­pected.”

Re­tail sales are still grow­ing in China — they were up 10.6 per­cent year-on-year in June, ac­cord­ing to the gov­ern­ment — but some for­eign firms are strug­gling to main­tain their slice of the cake.

Ap­ple’s iPhone sales surged 85 per­cent in Greater China — which in­cludes Hong Kong and Tai­wan — with rev­enue from the re­gion more than dou­bling to US$13 bil­lion for the latest quar­ter ended June 27, ac­cord­ing to the com­pany.

But i nde­pen­dent an­a­lysts Canalys said this week it had been pushed into third place in the quar­ter by lo­cal man­u­fac­tur­ers Xiaomi and Huawei, which pro­duce cheaper prod­ucts, while South Korea’s Sam­sung was rel­e­gated to fourth.

Sales of lux­ury watches and spir­its have al­ready been bat­tered by an ex­tended aus­ter­ity and anti- cor­rup­tion cam­paign un­der leader Xi Jin­ping.

Like Nowhere Else

In­ter­na­tional fi­nan­cial mar­kets have been spooked by a re­cent rout on China’s stock mar­ket, which con­tin­ues to be volatile de­spite di­rect in­ter­ven­tion by Bei­jing.

An­a­lysts say that the im­pact on the real econ­omy has been lim­ited so far, de­spite re­ports the auto and prop­erty sec­tors have both taken a hit.

Sus­pi­cions grew that the eco­nomic slow­down could be more pro­nounced than of­fi­cial sta­tis­tics sug­gest, af­ter sec­ond quar­ter growth ex­actly met the gov­ern­ment’s full-year tar­get of around seven per­cent, de­spite a se­ries of dis­ap­point­ing in­di­ca­tors dur­ing the pe­riod.

But Chi­nese an­a­lysts be­lieve the coun­try still holds a draw for for­eign com­pa­nies.

“Com­pared with the past, China’s econ­omy is slow­ing down. But com­pared with other coun­tries, it’s still grow­ing quite fast,” said Li of Yingda Se­cu­ri­ties.You can’t find another econ­omy like China.”

AP

A woman se­lects pork meat at a mar­ket in Yichang in cen­tral China’s Hubei province, Sun­day, Aug. 9.

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