Las empresas estadounidenses ven caer sus beneficios a niveles récord en China

Welcome to Crossroads. A new report shows that companies in China are seeing how their earnings fall to historical levels. Now, according to a new report, only 66% of the companies in the United States were profitable in China last year. This is not limited only to the United States. Even the European companies are also seeing how their businesses fall in this way in China. The latest development, notably, is breaking the beliefs that the market is going to improve. That is having a chain effect, of course, in investments. In addition, the new policies of the Chinese Communist Party, PSC, which favor national companies, its economy in decline with the real estate and banking crisis, and a global trade war in expansion, all this is coming together and is really affecting the country. This development could also accelerate the process of leaving Chinese companies, since they face declining earnings, which could have a domino effect in investments and then in the economy in general. Now, American companies in China are being especially affected. This is according to a new report published by the American Chamber of Commerce in Shanghai on the business climate in China. They mention some factors, including the increase in geopolitical pressure and the economic slowdown in China. All these things are contributing to a, I quote, less optimistic perspective for China. Here are some of the exact numbers on what is happening with these companies, according to the report of the American Chamber of Commerce. It says the following, only 66% of American companies were profitable in 2023, again in China. This is a low historical level, according to the report. It says that 47% of the surveys are optimistic about the business climate in China in the next five years, while only 13% of the surveyors classify China as the main investment destination of their headquarters. Both percentages are the lowest in the history of our survey. In addition, it points out that more than two-thirds of companies are following a risk reduction strategy, with 36% investing in the resilience of the supply chain and 25% segregating data and information from China and not China. What does that mean? It means that they are making sure that, if the Chinese economy collapses, it does not destroy their businesses. When they talk about risk reduction, it means that they are eliminating the risk of being too tied to the Chinese economy, so that, as things worsen, it does not leave them out of business either. When they mention the segregation of data from China and not China, it means that they are basically building two separate empires, so to speak. They also talk about investing in the resilience of the supply chain. That means that, if you are working in real estate development and need iron, or if you work, for example, in computer technology and need rare minerals, you need resilience in the supply chain. If the PSC cuts the supply of something, it will have other places to resort to. They don't see the PSC in China as something stable at this moment. A record of 25% reduced investment in China last year, but only 20% expect to do so this year. The main reason why members are reducing investment is the concern about slow growth in China. Opportunities in other markets are the reason why 40% of members are redirecting their planned investments, with Southeast Asia and the Indian subcontinent being the most popular options. They can manufacture just as cheaply and just as efficiently in other places. Why keep it in China? That is what they are saying. They also point out that only 22% of the surveyors expressed confidence that the Chinese government is committed to opening up its industry more in the near future, because, apart from everything else, the Chinese Communist Party is focused on domestic production. They want Chinese companies, not American, not European, not from any other place. They want Chinese companies. With this trend, we are also seeing some companies that are simply leaving China. The Epoch Times said this. I.B.E.M. has decided to follow the example of what has become a long list of American brands and close some of its operations in China. And although the management has been very diplomatic in its statements, it has clearly read the same message as other American firms. While this represents an inconvenience and a cost for companies that are moving away from agreements that have sometimes lasted decades, it does not help China to lose the experience and commercial knowledge of these operations. What is even more interesting is that this is not just an American problem. It is not just the PSC going against American companies. This is a widespread phenomenon, and we see this happening remarkably also with European companies. A report that came out had very similar findings for European companies in China. This came from the Chamber of Commerce of the European Union in China in its last position document. They said the following. The main concern of the members of the European Chamber is the economic deceleration of China. However, several other factors are affecting business confidence, including the perennial barriers to access to the market and regulation. In other words, the PSC is limiting its access to markets, and Chinese regulations are making it difficult to do business there. Again, the PSC is favoring national companies, not foreign ones. In addition, the highly politicized business environment, where the PSC is regaining more state control over the economic sectors, includes not only companies, but also investment and the bank, among others. There is also a weak domestic consumption, an overcapacity, the persistence of ambiguous rules and regulations, and the continuous focus of the government on national security and on developing a high degree of self-sufficiency. They don't need anyone else. They want Chinese companies. In addition, it stands out that in the headquarters of companies and among shareholders, there is a feeling that the returns on investment in China are no longer proportional to the risks faced. It's not worth it. The profit margins in China are equal or lower than the global average for approximately two-thirds of the members of the European Chamber, and pessimism about future profitability is at its highest point. In other words, the costs of being there are very high, the risks of being there are very high, and the benefits of being there are quite low. There is not much in favor. This raises the question, why are they still there? Why are they doing business there? Why are they putting their headquarters there? Maybe they want to consider it as a market to sell products, but do they need to be completely embedded there? That is the question now. As we have previously pointed out, included in this program, it was expected that the Chinese Communist Party would announce a solution to their economic problems, right? We have seen the banking crisis in China, the bank runs, the people arrested for doing it. Of course, we have seen Evergrande and all these large Chinese real estate companies begin to collapse. We are seeing how the PSC says, we have a plan, right? And what happened? Well, they had their recent third plenary session and a high-level meeting of the Politburo. It was expected that they would make a big announcement about the solution to the Chinese economy, how they were going to save it. And what happened? The Chinese Communist Party came out with ambitious statements about how they are going to be the future world power and all their plans of how they want to see themselves in the future. But they did not propose any concrete step to achieve it. There was no real proposal on how to solve the problems. And you know, it was not only the critics of China who said this, also the traditional media. Investment groups also pointed it out. People noticed that the PSC did not present real steps for solutions. Even so, there were some people who kept hope. Some investors said, well, we think they have a plan, just that they are not telling us. They said that they had to invest to find out what the plan was. And they found out. They found out that the PSC actually does not have a plan, and the plan that it does have involves, in its majority, leaving them out. What the PSC also did along with this was to declare again a focus on domestic production. They have a goal publicly declared, to even replace foreign technology in each system. They don't want Windows, right? They don't want American operating systems. They don't want American software. They don't want anything from any other country that they have to depend on. And if they depend on something, they are looking for how to replace it, not how to buy it. The important thing about this is that it means that foreign companies are facing an increasingly limited future in China. Now, here is more information from the position document of the Chamber of Commerce of the European Union. They say that the foreign business community had been waiting for signals in the third plenary session of the Central Committee of the Chinese Communist Party, that at least some of these concerns would be addressed. And they say this. Instead of that, the decision of the third plenary session, again this high-level group of PSC, continues to promote investment in manufacturing as a key engine of economic development of China. Although under the motto, new productive forces of quality. That is a slogan of the PSC. They say that the goal is to increase the production capacity and goods and technologies of greater added value strategic. They point out that the intention of intensifying efforts to develop a complete internal demand system, but the document does not contain nothing concrete about how consumption will be stimulated. How are they going to make the Chinese start spending their money and buy? That is the big question, and the PSC does not give answers about that. And it's not just that. The PSC has been taking some specific measures against European companies. I will talk more about how China has been acting in the international business space, Welcome back. This occurs in the midst of geopolitical tensions and the slow growth of the Chinese economy. It is not only American companies that face this situation. Even European companies are seeing how their profits in China are affected. This happens while China, under the control of the Chinese Communist Party, PSC, focuses on domestic production, with a clear goal of replacing practically anything they get from abroad, including technology and any type of dependence on foreign companies. And foreign countries are doing the same with the Chinese market. But with European companies in particular, the PSC is taking more direct action. ABC News reported the following. In August, China filed a complaint with the World Trade Organization for the tariffs of the European Union on electric vehicles manufactured in China. It also launched investigations for dumping and subsidies in European dairy products, brandy, and exports of pork. These retaliatory actions have generated fears that a trade war may break out. Many European companies are deciding that the performance of their investments in the second largest economy in the world is not worth the risks, due to problems such as China's economic slowdown and a politicized business environment. Now, briefly about that, perhaps you remember that the European Union imposed tariffs on Chinese electric vehicles. Why did they do it? Well, the PSC produced these vehicles in excess. They had too many in inventory, they needed to get rid of them, and they wanted to sell them in foreign markets with a significant drop in prices. The problem with this is that many Chinese companies, especially in sectors such as electric vehicles, are subsidized by the government, which allows them to sell at prices with which no one can compete because they do not need to make profits. These companies are artificially supported by the PSC. The PSC does this, reduces prices, sells below the cost, companies cannot compete, the PSC eliminates its competitors, and when these break, the PSC has the monopoly of the entire industry. Once they have the monopoly, they can buy their old competitors or become majority investors, thus obtaining a global monopoly within a complete sector. Europe, the United States, and many other countries do not want that to happen. They want to make sure that the PSC does not control the future of sectors such as vehicles or technology that, in the future, the world will need. That's why they say, no, you can't do this if you're subsidizing these products. You can't sell below the cost just to get us out of the business and keep the monopoly. Then they responded. They established measures to prevent the PSC from doing it. The PSC, very upset by this, is responding in a similar way, and is now taking measures against products such as dairy and European pork. For the European Union as a whole, this may not be a big problem, but for some individual member states, those markets are very important. So the PSC is trying to elude the European Union and go to specific countries to try to make trade agreements and dodge those targets. That's how things are at the moment. But the interesting thing is that the general signal seems to be that what is going through the economy of China at this time will worsen. So even leaving aside the trade war, there is more at stake here. Let's add to this the growing sanctions and tariffs, both internal and external, the increasingly larger role of the PSC in global conflicts such as Russia, Ukraine, Israel, the South China Sea, Taiwan, and possibly now the Arctic, and we can see where the trend is heading, going back to the position document of the Chamber of Commerce of the European Union. This is how European companies are reacting to this, and perhaps, with a little hope, they are making recommendations for China. The report of the Chamber of Commerce of the European Union says the following. They are asking the PSC to, I quote, promote legislation to establish a truly equitable playing field between foreign and Chinese companies, improve the predictability and reliability of the regulatory environment in China, ensuring that the legislation is specific and clearly defined, and that it is written in consultation with the industry, that they abstain from erratic changes in policies, and allow reasonable transition times, before implementing new policies, or modifying existing ones, allow access to legitimate sources of data and business intelligence that companies need to make well-informed investment decisions, abstain from punishing companies for the actions of the governments of their countries of origin. What they are doing is, in a certain way, asking the PSC to stop being the PSC. The viability of these recommendations in communist China is basically minimal. Is the Chinese Communist Party going to accept this? The PSC is not going to change its nature. It is not going to step back in its economic plan that favors domestic production. It is not going to adopt clear and direct policies, because it uses those gray areas as a way of controlling foreign companies, such as making them self-censor, for example. And it is not going to step back in the international trade wars or in the other conflicts that are growing. Just because some companies, which do not even seem to be a priority at the moment, are complaining about it. Look, the PSC, the current trend, is going in the opposite direction. The Chinese Communist Party is becoming more aggressive. And not only that, the priorities of the PSC are not in these European companies. The priorities are in national production, in the independence of foreign markets. They don't want to depend on anything outside of China. Therefore, the probability that the PSC will adopt the demands of these European companies is practically zero. What is also important is that the trends that we are observing will very likely have a cumulative effect on each other. The key factor here is investment. If companies leave China because business is bad, what message does this send to investors? Investors will say, well, this company we are investing in is leaving China. They are probably going to suffer an impact because they are losing a market. Do we want to invest in them? In addition, the PSC has internal policies that no longer favor these companies. What is going to happen to them? If China loses investors, it also means, crucially, less money in the economy. And the problem that many of these companies are facing, apart from everything else, is the lack of consumption. People in China are not buying products as they used to do. And in business, that means that people have less money to spend. And again, where do people get their money from? Well, they work in companies, the company makes profits, they receive a salary. And then they can go to restaurants, buy online and buy other things, which means that the money goes to other companies, which in turn pay their employees. And this is how a healthy economy works. But what happens when people stop spending money? The money stops going to companies. The money from companies stops going to salaries. And the people who receive those salaries no longer have money to spend, entering a cycle of death. Sometimes investment can help break this cycle, but it needs people to spend. And it also requires some hope in the future of the economy for companies to want to invest there. When that process begins to crumble, is when it enters what the PSC is facing now. People don't have money to spend, maybe they feel like they need to save because there might not be any money tomorrow. All this has an effect. It returns and hits the ability of people to spend on products or businesses. And that cycle continues to repeat. The result is like a thread that comes out of a ball of yarn. The economy in China is crumbling through this process. CNBC said the following. European companies in China have become so discouraged with the prospects of operating in that country that Beijing, the PSC, must act if they want companies to invest more, according to the Chamber of Commerce of the European Union in China. And they said, I quote, we believe that we are in a kind of point of inflection. If they want to do something, the time is now, according to Jens Eskelund, President of the Chamber, who spoke with the journalists before the publication of the document. It is also observed that the foreign direct investment in China fell 29.6% during the period from January to July, compared to the previous year, according to the Ministry of Commerce of China. In addition, the decrease is attributed to the high base of last year. Now we are also seeing this reflected in the warnings issued to investors. Because, again, it is not just companies that are trying to make money in China. Warnings are also being issued to investors to prevent companies from being too exposed to the Chinese market. Bloomberg said the following, I quote, avoid actions exposed to China in Europe, according to Citi. It also points out that luxury goods manufacturers, miners and automobiles manufacturers are seeing stronger cuts in earnings expectations than the market in general. And that will not change soon, according to Citi's strategist in the report, which contrasts with last week's Bank of America. It is mentioned that Citi's basket of European companies with high exposure to income in China has fallen by more than 7% this year. A strong divergence with a 6% gain, observed in the Stock 600 reference index. In addition, this feeling is also being expressed at the governmental level. So, consumers, businesses, investments and government, right? In the United States, we are seeing that policies against PSG are becoming more and more bipartisan. What does that mean? Normally, for countries that do business with the United States, they understand that every two years, with midterm elections, or every four years, with presidential elections, there is a possibility that American policy will change, because we tend to oscillate between Republican or Democrat administrations, and we have a system of rotating policies. Things tend to change from one side to the other. The difference is when Republicans and Democrats are aligned on a topic. And in regards to China, both parties are relatively aligned. Now we have The Atlantic, for example, saying that one of the few things that emerged from the Trump administration, the entire trade war with China, the tariffs and sanctions that still remain, is something that both Republicans and Democrats seem to agree on. And we are seeing this reflected even in the future possible administrations. It is unlikely that this position of the United States towards China will change, no matter who is elected. And they are realizing this. The European Union has also expressed its position on business with China, and the trend for them is, I quote, to reduce risks. In fact, this is from an official statement recently published by the European Union on its official website about its position on the matter. They say, I quote, China is the second largest trading partner of the WTO after the United States, with a bilateral trade that reached 739 billion euros in 2023. This represents a 14% decrease compared to 2022. And that was even during a difficult time due to confinements due to COVID. At the European Council in June 2023, member states of the WTO reaffirmed the approach of a multifaceted policy of the WTO towards China, outlined in its strategic perspective of 2019. They say the following, China is simultaneously a partner, a competitor, and a systemic rival. However, the balance between the challenges and opportunities that China presents has changed over time. They say that our economic relationship is critically unbalanced, both in terms of trade flows and investment, due to a significant asymmetry in the opening of our respective markets, which means that they lose money doing business with China, while China earns more money than them. It is more profitable for the WTO to get its business than for them to get the WTO's business. There is a discrepancy here, the same as what happens with the United States in its trade imbalance with China. In addition, China's economic model has generated systemic distortions with negative effects for its trading partners. According to the International Monetary Fund The use of industrial policies by China, in particular its support for priority sectors, has an impact on trade partners. In other words, the WTO's policies are affecting global markets. And one of the hopes when China opened up, when they said reform and opening up, and allowed it to enter the World Trade Organization, was that if the WTO got more involved with the free market, it would become less communist. And what happened? The WTO made the free market more communist. The opposite happened. It is also pointed out that another area of concern is China's drive towards the replacement of imports and self-sufficiency. In other words, they don't need anyone else. They want national companies to be successful, and they don't want foreign companies to dominate the market. They mention that, although the WTO welcomes the efforts of Chinese authorities to attract direct foreign investment, they want money to be invested in China, the WTO companies continue to face discrimination in the Chinese market. Because, again, they want national production to prevail. And they say that it is still difficult for European companies to compete in China due to the lack of equality of conditions. In addition, despite the ambition declared by the Chinese government to seek a high-level opening of its market and build mutually beneficial commercial associations, China is still largely closed in many important sectors. The WTO offers an equitable playing field. In other words, they manipulate the system against foreign companies. The European Union is committed to, I quote, They say that this implies reducing critical dependencies and vulnerabilities, including the supply chains of the WTO, and diversifying where necessary. What does that mean? Again, diversify, reduce risks. What does it mean? It means removing risky businesses from China. It means eliminating the risk that, if the Chinese economy collapses, or if they really decide to expel all your companies, you are not affected by it. They want to make sure they don't depend on the WTO. If the WTO decides, for example, we are going to ban all these rare minerals, we are going to ban iron, we are going to ban the mineral it needs to manufacture its products, we are going to make it unable to manufacture automobiles, we are going to make it unable to If they want to manufacture, let's say, solar panels or other products that need these rare minerals, well, the Chinese Communist Party has a global monopoly over them, and if they cut the supply, their business is over. They want to make sure that doesn't happen. They are talking about reducing risks, diversifying, and looking for new options for supply chains, right? Now, they say it's different from completely disengaging, and what they mean by that is that they still want to do some business with China, but they don't want to be as involved with China as to depend on it. They want to be in a position where they don't need business in China. The current trend shows that countries no longer want to fully bet on the Chinese market, nor do they want to be so intertwined with it. Even beyond that, if they are deeply linked, there are warnings for investors not to invest in those companies. It is becoming too dangerous, too unstable, and the future trend seems to indicate that this will intensify. Well, that's all for today. Thanks for joining us. Let me know what you think in the comments. Please help us share this episode, help us spread the information, and as always, take care, stay informed, and stay free. Thank you.