How and why China is the top destination of global investment?
How and why China is the top destination of global investment? Experienced audiences would know that since the launch of this channel , I have been firmly optimistic about the prospects of China's rise, and firmly believe that it would create tremendous opportunities for the world. In the stock market, the Shanghai Composite Index has exceeded 3,600 points; in the foreign exchange market, the RMB exchange rate against the US dollar has appreciated to 6.48. In terms of global capital investment orientation, China surpassed the United States in 2020 and became the world's largest destination of foreign direct investment.
The international investment to Mainland China alone was 163 billion U.S. dollars, while the U.S. was 134 billion U.S. dollars. Just a year ago, the U.S. received foreign investment as high as 251 billion U.S. dollars, while China ranked second with 140 billion U.S. dollars. Although this change in foreign investment is due to the epidemic, in the long run, the epidemic has accelerated the rise of China and the decline of the United States. In a sense, it can be said that the current positive outlook on China is similar to that on Britain in the early 18th century, and on America in the early 20th century.
I felt the unstoppable trend of the times. This not only can alleviate the anxiety caused by short-term fluctuations in different industries, but it also gives us a sense of historical participation to witness the great rejuvenation of the Chinese nation. Look farther and broaden your mind, and you will find that the present is the best era! Tesla's Shanghai plant was put into production, Exxon Mobil and BASF's 10 billion-dollar projects started, Starbucks and Wal-Mart accelerated the opening of stores in China, BlackRock and JPMorgan Chase continued to increase their holdings of Chinese assets... In the turmoil world, global entrepreneurs and investors are determined to invest more in China. 1 Only the Chinese market is reliable. On December 18, 2020, Starbucks stated at the global investor exchange meeting that in the next 10 years, it will expand its global stores from 33,000 to 55,000, and China is the top priority for its development.
In 2020, Starbucks, which has been hit hard by the epidemic, experienced the biggest loss in global performance in 10 years, but achieved rapid recovery and growth in the Chinese market. Since September, Starbucks China’s same-store sales have returned to the growth channel, with revenue in the third quarter rising 46.9% from the previous quarter. Data shows that in the third quarter alone, Starbucks opened 259 new stores in China. At the same time, it announced that it would close 600 stores in North America to reduce operating costs.
On November 16, Starbucks also invested a total of 1.1 billion yuan to build the first large-scale roasting factory in Asia-Starbucks China Coffee Innovation Industrial Park in Jiangsu province. It is not only Starbucks that firmly grasps the Chinese market, but also the unanimous choice of major global companies: under the global economic turmoil and uncertainty brought about by the epidemic, the Chinese market has become the main market for many multinational companies' growth in 2020. Statistics show that in 2020, the sales of the three major luxury car brands of Benz, BMW and Audi will all achieve substantial growth in China.
Among them, Mercedes-Benz’s cumulative sales in China was 774,300, a year-on-year increase of 11.7%. For every three cars it sells globally, one is from China; BMW and Audi’s sales in China also increased by 7.4% and 5.4%, respectively. Their best sales record since entering the Chinese market.
In addition, world-renowned auto companies such as Nissan, Toyota, and Volvo have also seized the opportunity of rising demand for private cars brought about by the epidemic, and achieved bucking growth in China. The German "Business Daily" even stated that "China has once again become the savior of German car companies!" Of course, it is far more than the major car companies that have been "saved" by the Chinese market. Nike, Skechers, Coca-Cola, L'Oréal, Johnson & Johnson, etc are benefiting from China.
In the second quarter of Nike's 2021 fiscal year, China revenue was US$2.298 billion, a year-on-year increase of 24%, and its single-quarter revenue exceeded US$2 billion for the first time. SKECHERS' total sales in the second quarter fell by 42% year-on-year, while the Chinese market grew by 11.5%, becoming the highlight of its financial report.
Skechers Chief Operating Officer David Weinberg said, "China provides a model of recovery, stability, and growth." In addition, in the context of a severe decline in global sales, Coca-Cola grew by 14% in China in the second quarter of 2020. L'Oréal grew by 17.5% in the Chinese market in the first half of the year; Johnson & Johnson
also achieved a growth of nearly 17% in the Chinese market in the third quarter. LVMH, Gucci and other top global luxury goods companies also ushered in a new round in the Chinese market increase. Bain & Company's research report shows that the global luxury goods market will shrink by 23% in 2020, but the Chinese market will grow by 48%.
French industrial giant Schneider Electric, global industrial tool leader, Spanish tool manufacturer EGA-Master have also achieved business growth in the Chinese market. In March 2020, Volkswagen Group CEO Herbert Dis said that because of the suspension of production in European and American factories, there is no income except for the Chinese market. "Only the Chinese market is reliable."
In the face of the epidemic, the Chinese market is not only a "safe haven" for many multinational companies, but also a key engine for their performance growth. 2 The construction of factories, stores, and investment can't stop. On January 7, 2020, the Tesla Shanghai Super Factory project with a total investment of RMB 50 billion was completed and put into production. The first batch of domestically produced Model 3 was officially delivered, and the Model Y project also started.
At the commissioning ceremony, Musk, who could not restrain his joy and danced. I am afraid that only the Chinese market can make Musk dance. Prior to this, Tesla had lost money for more than a decade, and finally relied on the Chinese market to successfully turn itself over. Not only that, Tesla's stock price also hit a new high on the day the Shanghai Super Factory started, and Musk's net worth soared to 44.9 billion US dollars. A year later, Model Y went public in China for less than a week, and its stock price continued to rise, sending Musk to the throne of the world's richest man. Not only Tesla, but also foreign truck giants such as Daimler and Scania are also accelerating their localization in China.
At the beginning of 2020, China's economy almost stalled due to the impact of the epidemic. At that time, Western public opinion criticized China one after another, saying that China's economy, facing the pressure of transformation and upgrading, would accelerate its recession, and foreign-funded enterprises would also accelerate their withdrawal from China. At the same time, the United States, Japan and other countries took the opportunity to promote the "return of manufacturing industries." Germany is also advocating "trade diversification" and calling on German companies to explore investment destinations outside of China. As a result, many people worry that there will be a wave of foreign capital withdrawal from China. What is the actual situation? The Japanese media JB press news network once wrote that the special funds issued by the Japanese government in April to subsidize the return of Japanese companies did not have its due effect.
Only 5% of Japanese companies applied for subsidies, and among these Japanese companies, the goal is not to withdraw from the Chinese market, but to take the opportunity to reorganize. China’s European Chamber of Commerce President Woodk said, “We will not consider leaving China. There is no second China. The reason is as simple as that.” According to Reuters, unlike the German government’s “trade diversification” approach, German companies have been trying to increase investment in China, especially after the outbreak, "thanks to China" has become the consensus of many German companies. Fang Mingbo, President and CEO of Beijing Benz said: “We have no intention of withdrawing the factory from China, and we have never discussed this because our operations here are gradually stabilizing.”
Not only did the epidemic prevent foreign companies from leaving China, on the contrary, even when the epidemic situation was still severe, a number of foreign companies are still racing against time to accelerate their investment in China, and many of them are large-scale projects. In April 2020, the global oil giant Exxon Mobil Corporation's US$10 billion ethylene project in Guangdong Huizhou started. At that time, the company had made a decision to cut capital expenditures in 2020 by 30%, from 33 billion U.S. dollars to 22 billion U.S. dollars, which also meant that it was focusing global capital on China. While ExxonMobil increased its layout, in May, another major chemical giant, BASF, also launched a new project with an investment of 10 billion US dollars in Guangdong—BASF Guangdong New Integrated Base Project.
On January 20, 2020, just three days before Wuhan’s “closure”, Honeywell, an established American Fortune 500 company, signed a contract with Wuhan East Lake High-tech Zone to set up its emerging market headquarters. In addition, world-renowned brands such as Wal-Mart, Opener, Charoen Pokphand Group, Lawson, Lego, IKEA, and Uniqlo have also accelerated the pace of opening stores and investing in China. Japanese grocery stores LOFT, Danish sports brand Bumblebee, The first Chinese stores of Lavazza, the originator of Italian coffee, have also landed in Shanghai.
A report by the Goldman Sachs shows that most companies in the US semiconductor equipment, materials, and healthcare sectors are also expanding production in China. What makes the US, Japan, Germany and other foreign-funded enterprises still insist on staying in China and continuously expanding investment under the policies of "reshoring", "special subsidy" and "trade diversification" in their own countries? CNN put it very truthfully: Relocation is not as simple as packing all kinds of equipment into boxes and transporting them to the other side of the Pacific Ocean. On the contrary, companies have to pay high costs for transferring production. Take Tesla’s Shanghai factory as an example. The Lingang New Area where it is located has gathered a large number of local suppliers, most of which are within a few kilometers of the surrounding area. This alone can save a lot of real money.
The Chinese market is not too big to ignore. The latest data released by the Ministry of Commerce once again showed the enthusiasm of foreign businessmen to increase their deployment in China: In 2020, the country’s actual use of foreign capital was 999.98 billion yuan, a year-on-year increase of 6.2% (equivalent to US$144.37 billion, achieved increases in the total amount of foreign investment, growth rate, and global share.
Against the dual background of five consecutive years of decline in global foreign direct investment and the impact of the epidemic, such results are particularly rare. 3 Not investing in China is very dangerous. The British "Financial Times" reported that in 2020, foreign investors allocated Chinese stocks and bonds worth more than 1 trillion yuan. The year 2020 is also called by foreign media to be the year when China's capital market fully exploded.
In fact, the trend will continue in 2021. According to a survey by HSBC Securities, in 2021, nearly two-thirds of more than 900 institutional investors and large companies worldwide plan to increase their investment in China by an average of 25%. Under the epidemic, just like physical investment, RMB assets also play a "safe haven" role in global asset allocation. Ray Dario, the founder of the world's largest hedge fund Bridgewater Fund, has always been strongly optimistic about China. He once declared that "it is very dangerous to not invest in China." Jim Rogers, an investment guru who is as famous as Buffett and Soros, also said, "Compared with U.S. stocks, I am more optimistic about A shares and will hold more Chinese stocks."
According to BlackRock, the largest listed investment management group in the United States, China is an investment destination of emerging markets. According to a research report by CITIC Securities, as of the end of the third quarter of 2020, the market value of overseas head funds' holdings of Chinese stocks has risen from US$486 billion at the end of the second quarter to US$551 billion, an increase of 13.4% from the previous quarter, equivalent to approximately 35,800 yuan. 100 million yuan. Among them, BlackRock, JPMorgan Chase, Vanguard, Capital Group and Fidelity Fund 5 institutions hold more than half of the positions.
Specifically, China concept stocks are the main targets for overseas institutions to increase their positions. For example, in the third quarter of 2020, Bridgewater increased its holdings in many Chinese concept stocks such as JD.com, Pinduoduo, Baidu, Nio and Best Express. In addition, leading Chinese internet companies in the US and Hong Kong stocks, and consumer stocks and pharmaceutical stocks in A-shares are also favored by overseas investment institutions.
In addition to stocks, Chinese bonds are also the first choice for foreign investors. According to data from the Central Bank, as of the end of December 2020, a total of 905 foreign institutions have entered the market, and foreign institutions hold 3.25 trillion yuan in interbank market bonds.
Data released by China Bond Board on January 7 showed that in 2020 alone, the face value of bonds held by foreign institutions in China Bond Board increased by 1,007,871 million yuan. In the context of negative interest rates and continued decline in U.S. bond yields, high-yield Chinese bonds have obvious advantages.
In November 2020, the premium of China's 10-year Treasury bond yield to U.S. Treasuries over the same period was 252 basis points higher, a record. Coupled with the inclusion of China's treasury bonds in international indexes and a series of opening-up measures, foreign investors have increased their positions in Chinese bonds for more than two consecutive years, and this momentum will continue. In addition, security is also an important reason why foreign investors choose China. A report by the World Bank pointed out that the epidemic has caused governments and multinational companies to pay more attention to the security factors of global industrial chains and supply chains. The resilience of China's economy has given foreign investment in China confidence and a sense of security.
According to data released by the National Bureau of Statistics of China on January 18, preliminary calculations show that the GDP for the whole year of 2020 is 101,5986 billion yuan, which is an increase of 2.3% over the previous year at comparable prices. The epidemic has not changed the fundamentals of China's long-term economic improvement. Whether it is at the worst moment of the domestic epidemic or at a time when the epidemic has quickly recovered, investing in China is a wise move. 4 The scenery will still be better in China On November 29, 2020, the National Development and Reform Commission stated that the total retail sales of consumer goods in China in 2020 will surpass the United States and become the world's largest consumer goods retail market. On November 4, 2020, the third CIIE was held in Shanghai. In order to seize the "opportunity in China," many senior executives of foreign companies would rather be quarantined for 14 days and participate in person.
In this CIIE, nearly 80% of the world's top 500 and leading companies in the industry participated in the Expo. Before the launch, 35 CIIE members including Michelin signed a three-year booth with the CIIE. The huge market of 1.4 billion people, the world's largest manufacturing country, and the largest trading country make China an irreplaceable position in global trade, industrial chains and supply chains, regardless of "reshoring" or "de-sinicizing the supply chain" or "trade friction," neither can change the reality that foreign companies increasingly rely on China. In recent years, some foreign-funded enterprises have left China and then returned to China, or finally chose to stay after "entanglement".
The following are good examples. In May 2018, less than three months after LG announced that its mobile phone business had withdrawn from China, it announced that it would return to the Chinese market again; On August 23, 2019, the director of Takashimaya, Japan, decided to continue the business of Takashimaya Department Store in Shanghai instead of leaving. On 2019 Singles Day, Germany Adidas announced that it will restart the factory in China; In August 2020, the Japanese electronics giant Matsushita also announced that it will invest and build factories in Guangdong Province, to return to the Chinese market. In addition to the Chinese market and the “hardware” made in China, China’s commitment to opening up and optimizing the business environment are becoming more “software” factors. That is why more foreign companies choose China. In recent years, through the construction of pilot free trade zones, free trade ports, and a series of actions such as the "dual circulation", China has continuously shown to the world that the door to China will not be closed, but will only open wider.
In terms of business environment, the "Global Business Environment Report 2020" released by the World Bank shows that in the past two years, China has made significant progress in the business environment. The business environment index ranked 31st in the world, an increase from the previous year 15 bits. In terms of policies, the "Foreign Investment Law" that came into effect on January 1, 2020 has provided "reassurance" for the development of foreign capital in China. The "Catalogue of Industries Encouraged for Foreign Investment (2020 Edition)" published on December 28 expanded the scope of industries that encourage foreign investment and gave corresponding preferential policies to eligible foreign investment. And foreign-funded enterprises and institutions are also using actions to continuously cast votes of confidence in China. According to a survey data released by the Chinese Ministry of Foreign Affairs in December 2020, about 82% of U.S. companies stated that they would not move their production out of
China in the next three years; nearly 70% of Japanese companies have high expectations for China's market potential;44 % British companies said they will increase investment in China in 2021. A research report released by the McKinsey Global Institute in 2019 showed that "China's dependence on the world economy is relatively declining, while the world's dependence on the Chinese economy is relatively increasing." After the emergence of the new crown epidemic, this trend will become more and more obvious.
In the post-epidemic era, China needs the world, and the world needs China even more. According to the Nikkei Asian Review, in this virus-ridden world, the Chinese market has become the last and best hope. Savers, safe havens, best hope... have become synonymous with foreign investors in the Chinese market since the outbreak. In fact, this is not the first time the Chinese market has rescued foreign investment.
After the outbreak of the global financial crisis in 2008, China's huge market once again became a hope for foreign companies to get out of economic slump. According to statistics from the Ministry of Commerce, as of 2019, about 490 of the world's top 500 companies have invested in China. After the emergence of the virus, global economic turmoil and the "certainty" brought about by the steady growth of China's economy have once again become the hope for foreign companies to get out of the crisis. According to data released by the General Administration of Customs, in 2020, the total value of bilateral trade in goods between China and the United States was 4.06 trillion
yuan, a year-on-year increase of 8.8%; the total value of bilateral trade in goods between China and trading partners such as ASEAN and the EU also increased by 7% and 5.3% respectively . This shows that in the context of shrinking global trade brought about by the epidemic, China is still an important engine for global trade and even economic growth. After the Chinese economy has withstood the impact of the epidemic, many institutions have predicted that the growth rate of the Chinese economy in 2021 will remain around 8%.
The World Bank’s January 2021 Global Economic Outlook report pointed out that China’s economy will grow by 7.9% in 2021; Schroders, a well-known investment group, is even more optimistic about China’s economic prospects and predicts that the annual growth rate will reach 9%. When the Chinese economy recovered quickly from the epidemic, the US economy fell into a long recession due to the worsening of the epidemic. Data show that in 2019, China's GDP has reached 66% of the United States, and in 2020 it will exceed 70% of the United States. With this momentum, many agencies predict that China's economic aggregate will surpass the United States in 2028, a full five years ahead of previous forecasts.
In the post-epidemic era, while foreign capital has increased its deployment in China, the day when China becomes the world's largest economy may accelerate. Creating original content is hard work, your support is what keeps me going. Please like and share this episode. You can also donate to this channel by clicking the link in the description below.