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I write on finance and economics.
The Great
Wall of China. (Photo by: HUM Images/Universal Images Group via Getty Images)
HUM IMAGES/UNIVERSAL IMAGES GROUP VIA GETTY IMAGES
President Xi Jinping and others in China’s leadership frequently
brag that they, because of their roots in Chinese culture, have greater
patience than others and take the long view in human interactions. If that
cultural reputation is justified for china generally, Beijing’s claims ring
false. Little of what China’s leadership does comes close to what others would
call patience. On the contrary, Beijing’s leadership has exhibited an almost
adolescent impatience to pull every lever of power as quickly as they can. And
what is more, this rather un-Chinese behavior has begun to undermine the
economic base supporting the Chinese Communist Party (CCP).
To be sure, not all of China’s problems have to do with the
CCP’s impatience. Some stem from the natural result of the economy’s
development. When China began its stupendous economic rise in the late 1970s, a
major asset was the country’s ability to offer western and Japanese businesses
a disciplined, reasonably well educated, and inexpensive workforce. Even as
late as 2000 when China first joined the World Trade Organization (WTO), its
average annual wage was barely over 3 percent of the American equivalent. That
cheap labor brought in billions in western and Japanese investment, carrying
with it income and opportunities for China’s economy. But as that economy has
developed, Chinese wages have risen and a lot faster than those in the rest of
the developed world so that by 2021, the last full year for complete data are
available, the average Chinese wage amounted to almost one third of the
American equivalent, still a big gap but nowhere near what it was
and not nearly as compelling either.
At the same time, Beijing’s policies have detracted still more
from the attractions of its economy. During the Covid pandemic, for instance,
Beijing blocked vital exports to the rest of the world, surgical masks for
instance. All could understand Beijing’s desire to supply its own population,
but the act nonetheless prompted western and Japanese business to reassess the
reliability of Chinese sourcing. Following that experience, the severe
lockdowns and quarantines of Beijing’s zero-Covid policies reinforced those
questions about reliability.
With the loss of these two attractions – inexpensive labor and
reliability – western and Japanese business found reason to chafe more than in
the past at other aspects of Beijing’s policies, for one, its insistence that
any firm doing business in China share its technology and trade secrets with a
Chinese partner or for another the outright theft of patented and copyrighted
intellectual property. While China was small and offered other compelling
advantages, most foreign businesses and their governments could overlook such
obnoxious behavior, but as China has grown and lost other attractions, it has
become more difficult to turn a blind eye to such practices, especially since
Beijing, despite international complaints, shows no sign of changing them.
If this were not enough, Beijing has increasingly resorted to
other bullying and vindictive practices. It has maintained a naval presence in
the South and East China seas despite legitimate claims by Japan and the
Philippines. Beijing has ignored findings by international courts. It has regularly
threatened military action against Taiwan. Chinese authorities used both formal
and informal means to retaliate against South Korean business interests because
their government installed the THAAD anti-missile system. These same Chinese
authorities cut off Australian wine sales to punish Canberra for questioning
the origins of the Covid pandemic. They have taken similar actions against
Sweden’s Ericsson, South Korea’s Lotte supermarkets, and all Lithuanian
manufacturing simply for trading with Taiwan.
And if such actions were not enough to make businesses think
twice about Chinese exposure, now that governments in the United States,
Europe, and Japan have begun to react to such bullying and other
longer-standing irritants, business has a further worry about getting caught in
the middle of diplomatic disputes.
Recent surveys and western business commentary testify to
changing attitudes. A poll taken last June by the European Chamber of Commerce
in China noted that one-quarter of its members currently operating in China
were considering closing and moving their operations elsewhere. Half complained
that doing business in China had become too politicized. This contrasts
radically with a similar 2019 poll that showed widespread enthusiasm about the
prospects for business in China.
Also indicative of new thinking are remarks by Director General
of the Confederation of British Industry Tony Danker. In a recent interview he
declared that every company with which he had spoken was considering a change
in the China focus of its supply chains. Bettina Schoen-Behanzin, vice
president of the European Chamber, noted that “[t]he only thing predictable
about China was its unpredictability, and that is poisonous for the business
environment.” The Anglo-American insurer, Willis Towers Watson reported that
fully 95 percent of multinationals are concerned about the risk of doing
business in China, up from 62 percent only two years ago.
A long list of prominent firms have already begun to move or are
seriously considering doing so. Apple has scheduled the production of its
AirPod Pro 2 for Vietnam and not China. Samsung is making similar decisions on
its China production. Volvo rejected China for a new factory and will build it
in Slovakia, while Adidas and other shoe and apparel makers have long since
left China for Vietnam and other venues. Japanese firms have begun to bring
some of their production home from China. And this list is far from complete.
For all the movement, China’s economy will remain dominant. It
is simply too large and too important. But the de-coupling of which Washington
never tires of speaking these days has clearly begun and notably for mostly
market reasons and not compulsions imposed by the U.S. or any other western
government.
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https://www.forbes.com/sites/miltonezrati/2023/04/03/not-everyone-but-many-firms-are-preparing-to-leave-china/?sh=20692f4f2590
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