Foreign companies are leaving China
Many say it’s because of China’s Covid policiesBut is the breakup permanent?
Welcome to
China Uncensored. I’m Chris Chappell. Things are getting pretty bad in China.
Which, honestly, could be the tagline for this entire channel.
We did a whole episode on run philosophy, which is basically people who are trying to leave
China at any cost. There’s a link in the description below.
But it’s not just Chinese citizens who want to leave China.
Foreign companies are leaving as well.
“In January, a UBS survey of C-suite executives revealed [that] more than
90% of those surveyed said they either were in the process of moving production
out of China or had plans to do so.” The European Chamber of Commerce in China
said 23% of EU businesses have considered shifting investments out of China.
That was in April, and it’s double the number reported just two months earlier.
It’s also the highest percentage in ten years.
It seems like no one wants to touch China with a ten foot pole. Which — given their
Zero Covid policy — probably makes them happy. Ten foot poles are great for social distancing.
Foreign carmakers and US tech companies are some of the most recent ones to move their
supply chains away from China. For example, Apple is planning to
move more of its production to Vietnam. It already makes iPads and Airpods there,
but soon the Apple Watch and Macbook could be made there as wellWhich I’m sure Vietnam appreciates,
as it’s one of the better things the US has dropped in their country. But that’s comparing
Apples to Agent Oranges.
Apple is also moving some of the production of the new iPhone 14 from China to India—although
for now those factories are just making phones for the Indian market.Google is planning tomake
more of its products in Vietnam as well. It has been making some of its Pixel smartphonesthere
for several years, but it’s planning to move even more of its China manufacturing there.
Although Tesla hasn’t announced a pullout from China, last year it did scale back plans to expand
there. It reportedly decided against buying land that could be used to expand its Shanghai factory.
Maybe because like why he backed out of buying Twitter, Elon Musk thought China was filled with
too many robots. Honestly, I’ve covered less crazy stories than that.
Tesla is, however, planning to expand its factory in Texas.
Earlier this year, it opened a new factory in Germany.
Tesla lost a lot of money from the supply chain crisis and from workers being forced to
quarantine. It was also affected by China’s drought and resulting power shortages.
They obviously weren’t watching China Uncensored when we warned them not to invest in China.
I guess our memes aren’t dank enough to keep Elon’s attention.
Japanese newspaper Sankei reports Honda is also considering moving its supply chain away from
China.It wants to keep making cars in China for the China market, but move its cars for
other markets somewhere else. Mazda has similar plans too.
Maybe because there weren’t *enough* robots in China for Japan’s liking.
Even non-manufacturing companies are pulling out of China.
Airbnb stopped listing in China at the end of July.The
stiff competition combined with the lockdowns made doing business in the country too risky.
These companies have different reasons for moving away from China,
but there’s one thing they all have in common. I’ll tell you what it is, after the break.
Welcome back.
You know for a long time, I’ve said the West should decouple from China.
That could be the other tagline for this channel.
China is an authoritarian regime that uses the money it gets from foreign investment
to undermine the liberal world order. But ideology is not why most companies are leaving China.
It’s the Chinese Communist Party’s autocratic policies. Surprise! Those policies are making
business so difficult and expensive that it’s getting harder and harder to make money in China.
Wow. It’s almost like the Chinese *Communist* Party isn’t compatible with *capitalism*! Who
could have possibly guessed… who hasn’t taken a 6th grade social studies class?
Most recently, it’s been the Party’s attempt to stamp out covid with its
“dynamic zero covid” policy that has not been so “dynamic” for businesses.
Residents are constantly forced to take Covid tests. And if even a few people test positive,
whole cities of tens of millions can be shut down.
“Such measures have heavily affected logistic and transport networks
since there are restrictions on how people and things can move.”
This means disruptions to supply chains everywhere. Especially when
China shuts down a city like Shanghai, which has the world’s busiest port.
The biggest problem is that drivers can’t easily move goods from one part of China to the other.
Drivers risk being quarantined as they travel between cities. And a shortage of drivers
pushes up the price of moving goods, which makes things more expensive for companies.
Then there are the international travel restrictions. Travel to and from China
has been extremely limited for a long time.
China only started letting in foreign students and some business visa holders last month.
The American Chamber of Commerce in China said 65% of companies it polled
had their businesses affected by travel restrictions.
Most said that covid restrictions forced staff to work remotely.
When China does let foreigners in, they have to go through a 7-day quarantine in a hotel
at their own expense, and then test negative for covid before being able to do
everyday things like go to the grocery store.
Seriously, I can’t imagine why tourists aren’t flocking to China.
Who wouldn’t want to spend thousands of dollars and travel across the globe to spend a week seeing
a hotel toilet. So majestic. Can’t wait to show the travel pics to my friends!
And a seven-day quarantine is the best case scenario.
One former chairman of The American Chamber of Commerce in China said he had to quarantine for 43
days when traveling to Beijing earlier this year. Because he got stuck in the Shanghai lockdown.
When he finally got out of Shanghai, he still wasn’t allowed to travel to Beijing,
so he just flew back to the US.
Fun trip! Hope he enjoyed the hotel toilet.
The European Chamber of Commerce in China said 58% of its members were
having a hard time attracting talent because of China’s covid policies. 42%
said they were struggling to retain the talent they already had.
The American Chamber of Commerce in China said in May that it was “bracing for a mass
exodus of foreign talent this summer, with fewer employees overseas willing
to take up open positions here in China.” I can’t imagine why being trapped in your
apartment for weeks on end isn’t seen as a perk! Just imagine all the Tiger King you
can watch! And all the fun recipes you…can’t make because you can’t get enough groceries.
But hey, you never have to wear pants! You won’t even be able to, since you’ll lose
so much weight your pants don’t even fit anymore. Now that’s what I call benefits!
The icing on the cake was the drought and power outages I talked about earlierWhile
that was only temporary, it shows just how fragile China’s energy supply is,
and how it affected supply chains. Their energy supply is almost as fragile as
Xi Jinping’s ego.
The longer we know this picture hurts his feelings, the longer we’re gonna keep showing it.
Then there’s the US tariffs on Chinese goods.
Trump put them in place when he was in office and President Biden is keeping them—at least for now.
There have been rumors that Biden wants to remove them to ease inflation,
but so far that hasn’t happened.
The tariffs are a big deal for multinational businesses. And they were a big reason a number
of companies started moving at least some of their manufacturing out of China a few years ago.
Including brands like PUMA, Steve Madden, Under Armour, GoPro, HP, Dell, and LG Electronics.
The vice president of the EU Chamber of Commerce in China said, “The only thing predictable about
China today is its unpredictability, and that is poisonous for the business environment.”
China is also poisonous for the *actual* environment, too. But that’s another matter.
All this is on top of China’s IP theft, its political attacks on foreign businesses,
and its arbitrary regulations. I’m not seeing a lot of positives to doing business in China.
But there are a lot of foreign companies that are staying put.
Why, you ask? I’ll tell you why, right after the break.
Welcome back. Even though business in
China is hurting from covid lockdowns, power shortages, tariffs, and travel restrictions,
many businesses are staying put. That’s partly due to inertia.
“Shifting operations out of China is an extremely difficult and complex process.
While [companies] may be frustrated by the COVID policies, they still remain hesitant
to remove themselves from an established market based on a short-term inconvenience.”
Basically, companies that have invested a lot in China are hesitant to close up shop
if they think things are going to get better at some point.
I’m not sure if I admire or pity that level of blind optimism. Especially
considering I’ve made a career out of pointing out how things aren’t getting better in China.
The American Chamber of Commerce in China said 41% of US businesses it polled would
downscale their China operations if Covid restrictions continued for another year.
And judging by how much power it’s given the Chinese Communist Party,
I’m guessing zero covid won’t be going away soon.
There are many who think zero covid might fade by the end of the year though.
There’s a Party congress next month where it will be announced whether Xi Jinping will
get a third term in office. If he does, some believe he’ll have more political leeway to end
China’s failed zero covid policies. If that’s true, then it might buy back
some goodwill for staying in China. But what about all the other, numerous problems facing China?
Already, travel restrictions are starting to ease for *some* business visa holders in China.
And quarantine times have been reduced from 14 days to 7 for foreign travelers.
Oh boy, I know what I want to do for my next family vacation.
But even if China does learn to live with Covid like the rest of the world has,
there are still a lot of risks on the horizon.
China’s economy is standing on thin ice. It’s got a housing bubble
bigger than this channel’s tagline that’s being held together by duct tape.
Check out the episode we did on that a few weeks ago.
If China’s economy goes south, there’s no telling what could happen. The Faustian bargain the CCP
has made is that it allows people to make money as long as they don’t challenge the Party. If the
economy collapses and people don’t have freedom *or money*, there’s no telling what they’ll do.
Well, besides threaten Taiwan. But that’s the “free space” on
the “What Will China Do” bingo card. And that’s the best-case scenario.
China could also launch a war on Taiwan, something it’s promised to do for a long time.
Like I said, they’re actually pretty predictable.
If that happens, companies should be ready to kiss their China investments goodbye.
We saw what China did with American mask-makers during the pandemic.
There’s no reason to think China won’t nationalize
other foreign businesses if there’s another emergency.
And if there’s anything we can count on,
it’s that things will keep getting pretty bad under the Chinese Communist Party.
And this show would not be possible without viewer support. Join my exclusive 50-Cent Army
by contributing directly to the show on Patreon or Locals. And as a perk,
I answer my supporters’ questions at the end of some episodes. Today’s question comes from...
Tree of Life on Patreon: “Hello I'm a new viewer,
I got intrigued by this video as I never heard of the mafia behind chinese politics.
I was however surprised by your implication that third term for Xi Jinping equals life term,
you didn't explain the backstory behind this implication so I searched
on internet and this article from bloomberg contradicts such belief. So which is true”?
Good question, Tree of Life.
Who’s right about Xi Jinping—me or the Bloomberg article?
Well firstly, keep in mind that several years ago, Bloomberg News killed an investigation
on the wealth of Chinese leaders, and then fired the reporter, and then tried to silence his wife.
Why?
Unofficially, Bloomberg News was scared of repercussions from the CCP.
Officially, haha they didn’t kill any investigation!
This is to say, take anything Bloomberg News says about China’s leadership with a grain of salt.
The Bloomberg article you reference is titled “Why Xi Jinping’s Third Term
Doesn’t Mean He’ll Rule for Life”
It says that while Xi Jinping is likely to get a third term as president in 2022,
“To keep that post beyond 2027, however,
he’ll need to keep securing five-year terms, under the current rules.”
I say, what rules? People in the West like to think of China as a rule-of-law system, where
rules dictate the government’s behavior. That’s false. In China or any other communist system,
leaders win or lose through power struggles.
Xi Jinping has done so well during the power struggle over the last several years
that he has already changed the so-called rules about stepping down after two terms. So again,
they’re not really rules. None of that nonsense about age limits and so on means anything.
The article is correct that Xi Jinping faces constant pressure
that could make it hard for him to rule. But that doesn’t mean he’s going to name a successor.
Even if he technically names a successor in five years, it could be a Russian situation,
where Putin let Medvedev be president for a few years as a placeholder,
but Putin was still actually in power the whole time.
Xi Jinping has no intention of stepping down. The only ways he’s going to relinquish power are being
purged, dying, or the entire CCP collapsing. And the first one is getting less and less likely.
Thanks for your question, Tree of LIfe.
And thank you to everyone else as well who supports us directly through Patreon or Locals.
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that also allow viewers to support us directly.
The links are below. We really do rely mainly on viewer support for this show.
Once again, I’m Chris Chappell. Thanks for watching China Uncensored.