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microe
don't forget the polution Chinese are suffering. Are Americans willing to take ...
daleste
It is surprising that China didn't expect this. They shouldn't worry. Once the ...
Yoshida in China: Worries about declining U.S. investors
Junko Yoshida
8/16/2012 2:06 PM EDT
China is hungry for investing abroad
On the bright side, China's appetite for investing abroad remains strong. Under the weak global economy, foreign investors are making fewer M&A deals in China, but China continues to remain hungry to invest in companies abroad.
In the first half of this year, M&A deal numbers in China dropped by 33 percent, compared to the same period a year ago, according to a report PricewaterhouseCoopers (PwC) issued Wednesday (August 14th). In contrast, China’s outbound investment deals tripled in value, the report said.
Until several years ago, Chinese companies rarely showed up on the active M&A scene abroad.
The Chinese today, however, are increasingly comfortable with acquiring resources, energy and technology-related business abroad. In the first half of 2012, Chinese companies announced nine deals -- including seven in the resources and energy sector -- with a value exceeding $1 billion, compared with only two during the period last year.
While the Chinese remain eager to invest abroad, the PwC report, too, pointed out a trend of declining FDI in China. The report found a 42 percent drop in inbound deals into China by foreign buyers in the first half of this year, from the same period of last year.
Similarly private equity deals with a value of $10 million or more also dropped sharply, down 39 percent, according to PwC. This could be partly explained because deals processing times were intentionally lengthened in anticipation of a further decline in prices, noted PwC.
China’s commerce ministry spokesman Shen, however, insisted the full year's FDI in China would "stabilize," as economic growth picks up in the second half.
As to why China’s attractiveness will be strong in the long term, Shen cited “1) huge domestic consumption; 2) China's efforts to crack down on the infringement of intellectual property rights; and 3) the accelerating process of industrialization.”
Many in the West might agree on the first and third points, but on No. 2, not so much, not yet, not ‘til China puts its money where its mouth is.
Related stories:
Yoshida in China: If not China, there is always Indonesia
Foxconn outfoxes Sharp's sharpest
On the bright side, China's appetite for investing abroad remains strong. Under the weak global economy, foreign investors are making fewer M&A deals in China, but China continues to remain hungry to invest in companies abroad.
In the first half of this year, M&A deal numbers in China dropped by 33 percent, compared to the same period a year ago, according to a report PricewaterhouseCoopers (PwC) issued Wednesday (August 14th). In contrast, China’s outbound investment deals tripled in value, the report said.
Until several years ago, Chinese companies rarely showed up on the active M&A scene abroad.
The Chinese today, however, are increasingly comfortable with acquiring resources, energy and technology-related business abroad. In the first half of 2012, Chinese companies announced nine deals -- including seven in the resources and energy sector -- with a value exceeding $1 billion, compared with only two during the period last year.
While the Chinese remain eager to invest abroad, the PwC report, too, pointed out a trend of declining FDI in China. The report found a 42 percent drop in inbound deals into China by foreign buyers in the first half of this year, from the same period of last year.
Similarly private equity deals with a value of $10 million or more also dropped sharply, down 39 percent, according to PwC. This could be partly explained because deals processing times were intentionally lengthened in anticipation of a further decline in prices, noted PwC.
China’s commerce ministry spokesman Shen, however, insisted the full year's FDI in China would "stabilize," as economic growth picks up in the second half.
As to why China’s attractiveness will be strong in the long term, Shen cited “1) huge domestic consumption; 2) China's efforts to crack down on the infringement of intellectual property rights; and 3) the accelerating process of industrialization.”
Many in the West might agree on the first and third points, but on No. 2, not so much, not yet, not ‘til China puts its money where its mouth is.
Related stories:
Yoshida in China: If not China, there is always Indonesia
Foxconn outfoxes Sharp's sharpest
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Bert22306
8/16/2012 3:21 PM EDT
Yes, this more nuanced look at the Chinese economy now makes a lot of sense. It's not as simple as all manufacturing is rushing to China as fast as it can. Nor is it as simple as thinking that this is the best course of action.
I'm getting the impression that the Chinese government may not have appreciated just how uncomfortable many people are, in the west, with the loss of manufacturing and other jobs, as these moved to China and other Pacific rim countries. There may have been a perception that China was providing an invaluable service to the west, which is certainly true to a degree, but there's an associated unavoidable downside for western economies. You take those manufacturing and design jobs away from the west, it's hardly surprising that western investment overseas has to drop as a consequence.
Globalization is all about equalizers. For every action, do expect an equal and opposite reaction, only now across international boundaries. The economy, like the ecosystem, is one complicated system of self-regulating controls. Governments always try to tinker, however any control system engineer knows that tinkering on the edges is fraught with unintended consequences.
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junko.yoshida
8/16/2012 7:09 PM EDT
Thanks, Bert. The most interesting thing about this piece of news for me was this: we may not think much of Obama's initiative to "bring back manufacturing jobs to the U.S." ("it's an election-year slogan," we say, but now Chinese are using it as an execuse for their attracting less investment from the United States!
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Bert22306
8/16/2012 7:37 PM EDT
That's what I had gathered from your article, Junko. And that's why I think the Chinese are missing the bigger picture.
Blaming election slogans is not at all the whole story. Better look at the entire US economy to see why US investment in China isn't growing.
Everyone in the US is asking why jobs aren't on the rebound yet (and I'm convinced government-created tax uncertainty has a whole lot to do with it, not to mention a host of anti-business rhetoric). So the Chinese should wonder why investment from the US to China should NOT also be affected negatively.
From where I sit, the hemmorhaging of US jobs to China is precisely part of the problem. Eventually, it caught up. Action - reaction. It's probably not a zero-sum game, but it's pretty clear that the big gains in offshoring to China have definitely dampened growth in the western economies. The big equalizer, globalization.
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sige
8/18/2012 5:41 AM EDT
It is ridiculous to insinuate that Chinese took away US manufacturing and design jobs. It is this kind of nothing-is-our-fault thinking that promotes misunderstanding between countires. Think about who decided to move the business abroad years ago - China just took advantage of that and accomodated what the US wanted. It is a capitalist system that everybody decides to play (not a socialist one) and so everybody assumes the consequences. Good for Obama for wanting to bring back those jobs. And China will react accordingly, whatever it takes.
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Bert22306
8/18/2012 6:13 PM EDT
"It is ridiculous to insinuate that Chinese took away US manufacturing and design jobs. It is this kind of nothing-is-our-fault thinking that promotes misunderstanding between countires. Think about who decided to move the business abroad years ago - China just took advantage of that and accomodated what the US wanted"
Wow, you really are missing it, I'm afraid.
There is no such thing as "what the US wanted." US companies, in order to lower their prices and get a competitive advantge, moved production AND DESIGN offshore. Certainly true for consumer electronics, like TVs and audio. But also for mundane stuff, like plumbing supplies and Christmas trees!
This moved many jobs away, and this has played a part in damping economic growth in the US and other western countries. Not just the manufacturing jobs, but also all the small support jobs around the industrial centers.
It is ridiculous to pretend it isn't so.
Companies tend to think short term gains. Americans and other westerners also like to buy products at the lowest price.
But this doesn't mean that people in the West are blind to what has happened, right? As the economies go flat or contract, the Chinese cannot help but notice reduced investment in China, from the west. Why would anyone think that the short-term goals of individual companies are all that "the US" wants? I'm sure that the US factory worker who can't find another job wants something quite different from companies moving jobs to China!!
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sige
8/19/2012 2:55 AM EDT
Well, you pretty confirmed what I commented. the americian people want to buy cheap stuff and and for that China is simply a tango partner for the US. At no point did I deny about people losing their jobs? So what point did I miss again?
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Bert22306
8/19/2012 5:43 PM EDT
At least 4 things are missing from your analysis, IMO:
1. The US is not one monolithic thought. It is multiple competing interests.
2. Companies want to be competitive in the short term, but also want a vibrant economy where they can sell their products.
3. People want low cost products but also want employment prospects.
4. As much as China is a "tango partner" for availability of low cost products to the US and the west in general, it is not a "tango partner" for the employment prospects of a large part of the work force, in US.
In other words, a mixed bag. Because as difficult as it is to accommodate major changes in the economy, like the move from agrarian to industrial, it's even MORE difficult when the change involves entire sectors of the economy moving offshore.
Consequently, investment in China from the US cannot be expected to increase or even stay steady, if the US economy struggles. This has nothing to do with campaign slogans. And Americans from all political affiliations are hardly comfortable with the idea that so much manufacturing has moved offshore.
The same I'm sure will be happening to China, if this move of manufacturing to Cambodia, Vietnam, and Indonesia comes to pass. It will be seen as a mixed bag, not universally celebrated. Only as wages and prices globally begin to even out will this state of affairs become a real "partnership."
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microe
8/20/2012 8:01 PM EDT
don't forget the polution Chinese are suffering. Are Americans willing to take the same job at the same pay and suffer from the polution? If not, how can jobs come back?
...
Some people work for a better life, but some work just to survive. I like to see the jobs go to the second group of people, no matter they are Asian, Americans or Africans...
Only with the willingness of personal sacrifice, then can we talk about human rights
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DMcCunney
8/16/2012 4:37 PM EDT
This trend was actually predictable. China is in the process of bootstrapping from a largely rural agrarian rural economy to a an urban industrialized one. They had the benefit of a large pool of peasants on the farms for whom those factory jobs were a step up in pay, hours, and working conditions. In the process, they developed problems that were quite predictable in terms of urban congestion and inadequate infrastructure as masses of folks migrated to the cities to get those jobs.
But that pool of labor is drying up, and Chinese manufacturers are having to compete for labor, with higher labor costs and therefore higher prices to customers coming with it. No surprise that Foxconn is looking to Indonesia, or that one of the big Chinese outfits announced a full scale push into robotics.
The challenge for China now is managing the transition to the point where their domestic market is healthy enough to provide the demand for stuff made in China and they are less dependent upon exports.
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xingfenzhen
8/16/2012 5:08 PM EDT
The real worry is out flow of Capital from China via Chinese firms and wealthy individuals themselves. As much as we engineers think that technology, industry and manufacturing are the drivers that powers the universe, it's a small part of a greater economic puzzle.
http://online.wsj.com/article/SB10000872396390444042704577589253328919714.html
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Sheetal.Pandey
8/18/2012 8:00 AM EDT
China has played the game so well that even if the investors do not want its difficult for them to go anywhere atleast it will not be that easy.But its good for the world business if there are other options open.
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seaEE
8/18/2012 7:03 PM EDT
One of the insteresting aspects of working in today's engineering world, is the level of interdisciplinary cooperation required to produce a design. The design effort tends now to sprawl across the world. Engineers work with manufacturers overseas. And the products being created are truly compelling. One can only wonder, as more countries acquire their "design legs", what incredible products might be produced ten or twenty years from now.
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chanj
8/19/2012 1:13 PM EDT
Reduction of foreign investments to China may bring out concerns. However, the biggest concerns that China has is the transition of workforce from labor intensive to knowledge based. Every country goes through similar development cycle. Simple manufacturing jobs bring cash to the country. As the economic blooms, wage rises. The labor force will shift to favor skill labors. As the economy thrives, knowledge becomes the main driver to increase productivity so as to maintain the cost to productivity ratio. Globalization and technology advancement has shortened the cycle. Most industrialized countries have experiences ten of years of economic thriving through production and the high demand of talents more than the demand of labor start like 15-20 years ago. China inevitably move to knowledge based economy after enjoying roughly 30 years of production based economy.
Just my 2 cents.
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daleste
8/19/2012 10:20 PM EDT
It is surprising that China didn't expect this. They shouldn't worry. Once the US economy is back, the investments will return. With the economy the way it is now, how can they expect to continue to get the investments of the past?
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