Tesla’s Shanghai factory has gone into production, ExxonMobil and BASF have launched multi-billion dollar projects, Starbucks, Walmart are speeding up store openings in China, BlackRock and JP Morgan continue to increase their investments in China…
So what makes them invest so much in the Chinese market?
ONE
Only the Chinese market is the most reliable!
China is a top priority for Starbucks as it aims to increase the number of stores worldwide from 33,000 to 55,000 over the next 10 years, the company said at its Global Investor Exchange conference on December 18, 2020.
By 2020, pandemic-plagued Starbucks had suffered its biggest loss in global performance in a decade, but enjoyed a rapid recovery and growth in the Chinese market. Starbucks China’s same-store sales have returned to growth channels since September, with third-quarter revenue up 46.9 percent from the previous quarter.
In the third quarter alone, Starbucks opened 259 new stores in China, the data showed. At the same time, it announced it would close 600 stores in North America to reduce operating costs.
On November 16, Starbucks also invested 1.1 billion yuan to open the first large roasting plant in Asia – Starbucks China Coffee Innovation Industrial Park in Kunshan, Jiangsu Province.
Not only does Starbucks have a firm grasp on the Chinese market, but it is also the consensus choice of major global companies: amid the uncertainty caused by global economic turmoil and the pandemic, the Chinese market has become the “leader” in the global economy, and China will account for more than half of the major revenue growth market for many multinational companies in 2020.
Statistics show that by 2020, the sales of BBA’s three major luxury car brands will achieve substantial growth in China. Among them, Mercedes-Benz sold 774,300 vehicles in China, up 11.7% year on year. For every three cars it sells in the world, one comes from China. BMW’s and Audi’s sales in China rose 7.4 percent and 5.4 percent, respectively, which are the best sales record since entering the Chinese market.
In addition, world-famous car companies such as Nissan, Toyota and Volvo have also seized the opportunity of the rising demand for private cars brought about by the epidemic, and achieved buck-trend growth in China. The German newspaper Handelsblatt went so far as to say: “China has once again come to the rescue of German car companies!”
French industrial giant Schneider Electric, the global leader in industrial tools, and Spanish tool maker EGA-Master have also seen business growth in the Chinese market. In March 2020, Volkswagen Group CEO Herbert Diess said there would be no revenue outside of China due to plant shutdowns in Europe and the United States.
“Only the Chinese market is reliable.” The Chinese market is not only a safe haven for many multinational companies, but also a key engine of growth in the face of the impact of the epidemic.
TWO
Build factories, open stores and invest more
On January 7, 2020, Tesla’s Shanghai Gigafactory project with a total investment of 50 billion yuan was completed and put into operation. The first batch of domestic Model 3 was officially delivered, and the Y-type project began.
Elon Musk danced during the test drive, unable to contain his joy.
Tesla had been losing money for more than a decade before relying on the Chinese market to transform itself. Not only that, Tesla’s stock price hit a new high on the opening day of the Shanghai Gigafactory, and Elon Musk’s net worth soared to $44.9 billion. A year later, less than a week after Tesla went public in China, its share price continued to rise, putting Elon Musk on the throne as 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.
Honeywell, an established Fortune 500 company, signed a contract with Wuhan’s East Lake High-tech Zone on January 20, 2020, three days before the city’s “closing”.
In addition, world-renowned brands such as Walmart, Open Market, CP Group, Lawson, Lego China, IKEA and Uniqlo have also stepped up the pace of opening stores and investing in China. Loft, a Japanese grocer, Hummel, a Danish sportswear brand, and Lavazza, the creator of Italian coffee, have also opened their first Chinese stores in Shanghai.
Most companies in the U.S. semiconductor equipment, materials and health care industries are also expanding production in China, according to a report by Goldman Sachs Group.
The latest figures released by the Ministry of Commerce again show the enthusiasm of foreign businessmen to increase their deployment in China:
In 2020, the actual use of foreign investment in China reached 999.98 billion yuan, a year-on-year increase of 6.2% (equivalent to 144.37 billion US dollars, a year-on-year increase of 4.5%), excluding banking, securities and insurance, realizing three upgrades in the total amount of foreign investment, growth rate and global share.
This result is particularly rare in the context of five consecutive years of declining global foreign direct investment and the impact of the disease.
THREE
It is dangerous not to invest in China
Foreign investors allocated more than 1 trillion yuan worth of Chinese stocks and bonds in 2020, the Financial Times reported. Foreign media have also called 2020 the year of the explosion of China’s capital markets.
In fact, such an outbreak will continue in 2021.
According to a survey by HSBC Qianhai Securities, nearly two-thirds of the world’s more than 900 institutional investors and large companies plan to increase their investments in China by an average of 25 percent in 2021, and just like tangible investments, RMB assets are playing a “safe haven” role in global asset allocations in the wake of the epidemic.
Rui Dario, founder of Bridgewater, the world’s number one hedge fund, has always been strongly bullish on China, declaring in high profile that “not investing in China is very dangerous”.
Jim Rogers, an investment guru as famous as Warren Buffett and George Soros, has also said, “A-shares are more optimistic than U.S. stocks and will hold more Chinese stocks.”
According to BlackRock, the largest publicly traded investment management group in the U.S., China is an investment destination independent of emerging markets.
China’s leading Internet companies are also favored by overseas investment institutions in the U.S. and Hong Kong stock markets, as well as consumer and pharmaceutical stocks in A-shares.
In addition to stocks, Chinese bonds are also a popular choice for foreign investors. As of December 2020, 905 foreign institutions had entered the market and foreign institutions held 3.25 trillion yuan of interbank market bonds, according to the central bank.
Against the backdrop of negative interest rates and the continued decline in U.S. bond yields, high-yielding Chinese bonds have a clear advantage.
By November 2020, the premium of China’s 10-year government bond yields to U.S. Treasuries was 252 basis points higher over the same period. Combined with the inclusion of Chinese government bonds in international indices and a series of liberalization measures, foreign investors have increased their positions in Chinese bonds for two consecutive years, and this momentum is set to continue.
In addition, safety is an important reason for foreign investors to choose China.
The resilience of the Chinese economy has given foreign investors confidence and security in China. The World Economic Outlook report released by the International Monetary Fund (IMF) forecasts that China’s economy will grow by 1.9% in 2020, making it the only major economy in the world to achieve positive growth.
With the global economy in turmoil following the emergence of COVID-19, the “certainty” of China’s steady growth is once again hope for foreign companies to escape the crisis, and institutions would be wise to increase their positions and invest in the Chinese market.
The day when China becomes the world’s largest economy is accelerating, are you optimistic?