Trade & Investment

MNCs see strong growth prospects in China despite slowdown

Updated: 2014-07-29
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A closed Best Buy branch in Hangzhou Feb. 2011. (File photo/Xinhua)
Some foreign businesses are struggling because of stagnant or falling sales in China as growth in the world's second largest economy has slowed down, but experts said they are seeing signs of a possible turnaround due to changes in the government's attitude.

Pessimism is spreading among foreign multinationals in China this year, reported the China Entrepreneur.

According to a survey released in May by the European Union Chamber of Commerce in China, two thirds of European multinationals said they are facing growing difficulties in China.

Thirty-three percent of the companies polled said their pre-tax profits are lower than the global average.

In the case of US multinational technology and consulting firm IBM, China has become a major contributor to the company's shrinking sales worldwide as its market share in China rapidly dwindles.

An official from a European multinational told the China Entrepreneur that multinationals used to target China as their top destination for investment but they are exploring new avenues in some Southeast Asian countries.

The American Chamber of Commerce in China (AmCham China) also echoed the view, with president Mark Duval complaining about overseas-based businesses' decreasing popularity in China and unfair treatment.

US and European companies are neither planning to pull out of China nor step up investments and expand, some of which want to wait and see what will happen, Duval said.

An executive from a multinational attributed the challenges facing overseas companies to a supply glut, which makes it unlikely for multinationals to expect to secure substantial growth by investing in China heavily.

In addition, multinationals are facing tougher scrutiny from Chinese authorities reviewing their applications to invest in China.

Multinationals also see their growth prospects limited by the rising wariness about seeking growth through mergers and the growing assertiveness on part of Chinese businesses who demand a greater share of profits in a partnership.

The biggest concern shared by overseas businesses in China is legislation against monopoly introduced in China, which some businesses say will deter attempts to acquire Chinese companies and fuel accusations against multinationals of price-fixing and unfair competition.

The worst days for multinationals will soon be over, however, according to Chen Jinya, vice president of Alcoa and the company's president for the Asia-Pacific region, who has noticed what he termed as "strong signals" from the Chinese government. Chen was referring to remarks made by Chinese premier Li Keqiang at a summit for chief executives in Beijing on July 9, where Li told participants that China will offer more opportunities for multinationals as Beijing is looking to open up its economy further.

As China transitions from a manufacturing-oriented country to a services industry-oriented nation, it needs to draw on the experiences and expertise of multinationals.

Chen is optimistic about the future of multinationals in China, saying their status will be recognized again in five years.

Multinationals have a lot to offer, including their expertise in environmental protection, their ideas about profit-making and giving back to the society, Chen added.
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