The Growing Fear of Uncertainty for American Companies in China American Companies in China Seek Solutions to Combat the Trade War
China falling right beneath America as the world’s second largest economy, is presenting new taxes on trade. Now, industries and companies have to navigate to an appropriate solution. However, American companies are not looking to decouple themselves from China just yet. They have a particular interest in China due to its rapid economic and population growth. China’s population of over one billion people creates an increasingly popular demand for the importation and exportation of Western goods, which in return yields massive amounts of profit for the companies; resulting in more diversified investment opportunities. “China will be a fully developed nation in 30 years. Its economy is going to be as big as the US,” says JPMorgan CEO Jamie Dimon. Dimon followed up saying, “we’re all in, so we’re not slowing down,” referring to the banks current pending investment plans, hoping to help boost the overall economy.
William Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, demonstrates why American companies cannot just simply decouple themselves or ignore the sheer size of the current market. According to Reinsch, “With 1.2 billion people, you can’t really be a multinational company or a global company without some kind of presence there one way or the other,” he said. Companies holding a diminutive presence in China can still conveniently yield profit, because even acquiring a small investment can potentially lead to a high profit yield from the demand of the population. If a company is gaining a market share of only 3%, that 3% still holds great potential for profitability. According to Dimon, “If you say, well, you’re never going to get more than 3% of the market, well, 3% of China is still a lot of money.” Dimon encourages that all companies [even their smaller shareholders] should reconsider the company’s role in China because the profit is potentially still fruitful.
Beijing showed efforts of reducing certain foreign investment restrictions such as allowing foreign companies to purchase stock on banks. This led many investment firms to open up a variety of different investment opportunities. Investors will now be permitted to own 51% in security firms, investment managers, and life insurance providers. This new regulation limited the sanctions or restrictions on foreign investment policies, which allowed shareholders to expand their investment in stock and shares to either be purchased or sold. Prior to this, there was only one significant bank which held a 19% stake in the Bank of Communications, showing that Western banks played little to no role in China’s economy. Banks were only permitted to have minority shareholdings which gave Western banks no say in decision making with Chinese banks. This resulted in a lot of prominent banks in the United States selling their chinese shares because it was seen as a bad investment. JPMorgan looks toward future business deals with Chinese firms, since there is no longer a cap on foreign investments.
Although the cap on investment opportunities for Western banks to purchase share holdings in Chinese firms was lifted, there are still challenges China faces. China’s economic slowdown (the lowest point China’s economy has plummeted in about twenty-seven years) and the ongoing trade war between China and America presented many companies with uncertainty. The AmCham’s summer survey lead a non-profit organization representing U.S. companies in China discovered that slowing growth was most feared amongst the prominent western companies. Approximately 53% of respondents are making efforts to reduce or refrain from certain investments, the cause of this is not solely the present trade war, but according to President Trump via Twitter, “The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place.” Companies are now switching to suppliers in Asian countries such as Vietnam, Taiwan, South Korea and Bangladesh – all as a result of the growing contagious fear of uncertainty.