CEOs in China: Aiming for more

Editor's note: U.S. Treasury Secretary Janet Yellen will be visiting China for the second time. It is time to take a look at how international corporations view the Chinese market. Take a look at this episode of Reality Check.

On March 21, Apple opened its second biggest store globally in Shanghai. It covers 3,800 square meters, attracting nearly $12 million in investment. Apple CEO Tim Cook personally welcomed the first customers. He expressed his love for China and the Chinese people in an interview, saying: "I love China and the people."

Not everyone was smiling. In the UK, the associate director of the Royal United Services Institute for Defense and Security Studies Jonathan Eyal mocked Cook. He wrote on X that Cook could lose the market "at a stroke of a bureaucratic pen." In the United States, Fox News said it should be a warning. Morgan Ortagus, former spokesperson of the State Department, said on a program that "it makes sense that he is over there to sell more iPhones and products in China. But it also, I think the Chinese Communist Party is not going to allow American companies ultimately to be successful there."

The state-business relationship has always been a go-to cudgel when someone wants to criticize China's business environment. For example, China's revision to its Counter-Espionage Law last year started a wave of association and insinuations in the international media. The New York Times, The Wall Street Journal, The Hill and many others have used it to argue and reinforce the perception that foreign firms are forced out of China. One piece in the WSJ particularly made links between the revision and the China-U.S. relationship. It said that the revisions came "amid a wave of raids, inspections and other acts by Chinese authorities against foreign, chiefly American businesses, as tense U.S.-China relations deteriorated further."

Zhao Hai, the director of International Political Studies of the National Institute for Global Strategy, said in an interview that "some of the small cases only involve one or two companies and a couple of people. However, there are thousands and thousands of companies running in China that are not being harassed, raided or fined. So, using little cases to scare other companies to not invest in China, I think that's a wrong way to look at this picture."

What it has intended to do is to paint a picture of the Chinese government, driven by geopolitical concerns, suppresses foreign business. What it's saying to foreign businesses is simple: Do not invest in China. But the business is saying: Thanks for the advice, but no thanks.

Ola Källenius, Chairman of the Board of Management of Mercedes-Benz Group, said that China is the biggest car market in the world, and it's the biggest market for Mercedes. We do business here, and most of our operations are here, so we build almost all the vehicles that we sell in China. Jean-Pascal Tricoire, Chairman of Schneider Electric, told us that "every year makes China different or leads to a different China. So, I always come here, try to understand, meet new people, and learn and collaborate with them." L’Oréal Chief Executive Officer Nicolas Hieronimus said that "China is a great, super-sized market with a fantastic potential, but more importantly, it continues to transform, to reform, to open up and to support the economy in a very high-quality development direction."

Opening up and foreign business investments have been the open secret of China's economic miracle over the past decades. In his 2024 government work report, Chinese Premier Li Qiang said that China will ramp up efforts to attract foreign investment, including further shortening the "negative list" for foreign investment, and all market access restrictions on foreign investment in manufacturing will be abolished. Market access restrictions in service sectors like telecommunications and healthcare will also be reduced. Premier Li said at Davos 2024 that "China's opening-up to the outside world is unswerving. We will continue to create good conditions for countries around the world to share China's opportunities."

In January 2024, 4588 new foreign-invested firms were established in China, up 74.4 percent year-on-year. The American Chamber of Commerce in South China's Special Report shows that 80 percent of the participating companies report their overall return on investment in China as positive or very positive in 2023. 62 percent of the companies chose not to shift their investments out of China. 76 percent plan to reinvest in China in 2024. Not a single company declared a complete withdrawal from the Chinese market.

Very wise.

The Executive Vice President of Programs and Services of Airbus Philippe Mhun said in an interview that "China is not only an opportunity, it's a given. We are already partners with China in terms of further developing aviation here. We've invested a lot. I mean, of course, our final assembly line in Tianjin is one of the most visible that we are having here. We are going to have a second final assembly line over there." Joe Ngai, the Chairman of McKinsey & Company Greater China, said that "if you look at the top 50 to 100 multinationals, their Chinese share of the global market is between 15 to 50 percent, right? They have actually enjoyed the Chinese market and the success in there for the last 20 years. The question is: "what am I going to do for the next 10 years?" And I think the question for them is one of competitiveness, is one of "how do I continue my success in China?"

Of course, successful business practice in China depends on its overall economic well-being. Despite the nay-sayers, China's economy has shown steady progress. Daniel Zipser, the Senior Partner at McKinsey & Company, told us that "China actually has seen a solid recovery in 2023. We continue to see the rise of the upper middle class. And we do still see consumption increase in mid-single digits. Given the scale China is at, that is actually something we could celebrate."

In the first two months of 2024, China's total import and export of goods expanded 8.7 percent year on year, with exports showing a 10.3 percent year-on-year growth to 3.75 trillion yuan. Trade value of private enterprises took up 54.6 percent of the foreign trade, up 4.2 percent from the same period last year. Foreign-invested enterprises constituted 29 percent. Reuters, the Wall Street Journal and many media have described it as a "strong footing" for the start of the year or beating expectations. Jeffrey Sachs, professor at Columbia University, commented that "China's productivity, technological advancement and innovation are proceeding rapidly. China is the low-cost producer of most of the advanced clean, green digital technologies that the world wants. So, on the supply side, I think the Chinese economy is in very good shape." John Quelch, the Executive Vice Chancellor of Duke Kunshan University, said that "yes, there are short-term challenges. I think that the recommendations that had been put forward regarding boosting unemployment, especially among youth, also an inflation target of three percent to try and elevate consumption, these are measures that will ensure the continued health of the Chinese economy."

Businesses want to earn profits. It's quite simple. They go where the market and money are. And the Chinese market has proven to be irresistible over the past several decades. There are short-term challenges to the economy. There are those who want to make it look bad. But it is the long-term, big-picture thinking that generates real rewards. And China's "long-term" looks pretty attractive. 

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