Foreign companies are shifting investments and their Asian headquarters out of China as confidence plunges following the expansion of an anti-spying law and other challenges, a business group said Wednesday.
The report by the European Union Chamber of Commerce in China adds is one of many signs of growing pessimism despite the ruling Communist Party’s efforts to revive interest in the world’s No. 2 economy following the end of anti-virus controls.
Companies are uneasy about security controls, government protection of their Chinese rivals and a lack of action on reform promises, according to the European Chamber. They also are being squeezed by slowing Chinese economic growth and rising costs.
Business confidence in China is “pretty much the lowest we have on record,” the European Chamber president, Jens Eskelund, told reporters ahead of the report’s release.
“There’s no expectation that the regulatory environment is really going to improve over the next five years,” Eskelund said.
President Xi Jinping’s government, trying to shore up economic growth that sank to 3% last year, is trying to encourage foreign companies to invest and bring in technology. But they are uneasy about security rules and plans to create competitors to global suppliers of computer chips, commercial jetliners and other technology. That often involves subsidies and market barriers that Washington and the European Union say violate Beijing’s free-trade commitments.
Two-thirds of the 570 companies that responded to the European Chamber’s survey said doing business in China has become more difficult, up from less than half before the pandemic. Three out of five said the business environment is “more political,” up from half the previous year.
Companies are on edge after police raided offices of two consultancies, Bain & Co. and Capvision, and a due diligence firm, Mintz Group, without public explanation. Authorities say companies are obliged to obey the law but have given no indication of possible violations.
Companies also are uneasy about Beijing’s promotion of national self-reliance. Xi’s government is pressing manufacturers, hospitals and others to use Chinese suppliers even if that raises their costs. Foreign companies worry they might be shut out of their markets.
Last month, the government banned using products from the biggest U.S. maker of memory chips, Micron Technology Inc., in computers that handle sensitive information. It said Micron had unspecified security flaws but gave no explanation.
One in 10 companies in the European Chamber survey said they have shifted investments out of China. Another 1 in 5 are delaying or considering shifting investments. In aviation and aerospace, 1 in 5 companies plan no future investment in China.
China has long been a top investment destination due to its huge and growing consumer market, but companies complain about market access restrictions, pressure to hand over technology and other irritants. The ruling party has tightened control since Xi took power in 2012, pressing foreign companies to give the party board seats and a direct say in hiring and other decisions.
The European Chamber noted it wasn’t just foreign companies that are moving: 2 out of 5 in its survey reported Chinese customers or suppliers are shifting investments out of the country.
A separate group, the British Chamber of Commerce in China, said last month its members were waiting for “greater clarity” about anti-spying, data security and other rules before making new investments.
The biggest concern is the ruling party’s sweeping expansion of its definition of national security to include the economy, food, energy and politics, Eskelund said.
“What does qualify as a state secret? Where does politics begin and the commercial world stop?” Eskelund said. That “creates uncertainty” about “where we can operate as normal businesses.”
In the European Chamber survey, the top destination for companies moving their Asian headquarters out of China was Singapore, with 43% of companies that moved, followed by Malaysia. Only 9% went or plan to go to Hong Kong.
Leaders including Premier Li Qiang, China’s top economic official, have promised to improve operating conditions, but businesses say they see few concrete changes.
“Our members are not really convinced that we are going to see tangible results,” Eskelund said.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
