The coverage of China by the business press continues to be wide-ranging and extensive, which is as it should be given its increasingly important role in the global economy.
I was reminded Monday by several different stories about how the People’s Republic is all over the map in terms of its business environment.
First, the New York Times wrote a piece about companies looking to move some of their production out of China as wages rise and to hedge against government policies that could change at any given time.
Foreign companies are flocking to Cambodia for a simple reason. They want to limit their overwhelming reliance on factories in China.
Problems are multiplying fast for foreign investors in China. Blue-collar wages have surged, quadrupling in the last decade as a factory construction boom has coincided with waning numbers of young people interested in factory jobs. Starting last year, the labor force has actually begun shrinking because of the “one child” policy and an aging population.
“Every couple days, I’m getting calls from manufacturers who want to move their businesses here from China,” said Bradley Gordon, an American lawyer in Phnom Penh.
But multinationals are finding that they can run from China’s rising wages but cannot truly hide. The populations, economies and even electricity output of most Southeast Asian countries are smaller than in many Chinese provinces, and sometimes smaller than a single Chinese city. As companies shift south, they quickly use up local labor supplies and push wages up sharply.
While wages and benefits often remain below levels needed to provide proper housing and balanced diets, the manufacturing investment — foreign direct investment in Cambodia rose 70 percent last year from 2011 — is starting to raise millions of people out of destitution. “People along the Mekong River are being lifted out of poverty by foreign investment inflows driven by higher Chinese wages,” said Peter Brimble, the senior economist for Cambodia at the Asian Development Bank.
Only a smattering of companies, mostly in low-tech sectors like garment and shoe manufacturing, are seeking to leave China entirely. Many more companies are building new factories in Southeast Asia to supplement operations in China. China’s fast-growing domestic market, large population and huge industrial base still make it attractive for many companies, while productivity in China is rising almost as fast as wages in many industries.
Foreign investment in China nonetheless slipped 3.5 percent last year, after rising every year since 1980 except 1999, during the Asian financial crisis, and 2009, during the global financial crisis. Still, at $119.7 billion, foreign investment in China continues to dwarf investment elsewhere. By comparison, investment in Cambodia rose to $1.5 billion.
But there is still a lot of ceremony and hoops to jump through if you’re going to be a big foreign player in the Chinese market. The Wall Street Journal had an interesting story about executives of several companies getting to speak to President Xi Jinping.
Here are a few excerpts:
In a variation on the elevator pitch, several dozen Chinese, Asian and Western business leaders sat down Monday with Chinese President Xi Jinping for what was billed as a roundtable discussion. In reality, it was short speeches by a handful of executives representing various regions, with a response from Mr. Xi.
These are treacherous times for many foreign businesses in China. Apple Inc. apologized last week after China’s state-run media accused the company of offering inferior customer service. Japanese auto sales have plunged amid a consumer backlash stemming from a territorial dispute between Beijing and Tokyo over a group of uninhabited islands. The Chinese economy is slowing, wages are rising, intellectual-property theft is rampant and the U.S. business community, in particular, is alarmed by reports of hacking by the Chinese military to obtain commercial secrets.
Mr. Xi addressed the concerns with few specifics beyond saying “we will step up” intellectual-property rights. “We are protecting the legitimate rights of foreign enterprises according to law,” he said. “We will continue to enhance the legal system and improve investment environment so that all enterprises can enjoy equal access to production, market competition and legal protection.”
“I will endeavor to build a more favorable environment for investors,” Mr. Xi said. But to the point raised by PepsiCo’s Mr. Abdalla, the president responded, “China has a level playing field.”
What remains to be seen is if Xi is willing to step in and create real reform. It seems that he may not have a choice if companies continue to move production elsewhere. I look forward to seeing the coverage, which is always tricky given the restrictions on journalism in China. Kudos to the organizations working hard to get the real story out to investors.
