For more than two decades, China emerged as the key player in global supply chains as American, European, Japanese, and Korean companies descended in hordes in the East Asian country to set up their manufacturing bases and earn profits by selling their products to the world.
By 2022, signs of multinational companies’ declining business trust in the Chinese market are becoming glaring as a large number of them are moving out of China with no promise of coming back to the country in the foreseeable future. Google’s translation app has joined the list of American tech companies exiting the Chinese market in the recent past. It had to do so because of a tougher regulatory mechanism and strict internet censorship regime which created hurdles in the smooth operation of the US-based company.
Earlier companies like Amazon, LinkedIn, Yahoo, and Microsoft pulled shutter down on their activities in China. Amazon launched Kindle, an e-readers’ app with much fanfare in China in 2013. Stacked with millions of e-books of all interests, Kindle soon became a fad among Chinese nationals.
By 2019, it occupied 65 percent of China’s booming e-book market. According to ABCNews, over 506 million Chinese users were reported to have accessed Kindle in 2021. Despite this, in June 2022, Amazon announced shutting down its e-bookstore in China next year.
The US-based e-commerce giant had closed its shopping website in China four years ago. It entered the Chinese market in 2004 through the acquisition of Joyo, a domestic online market which was founded by Lei Jun, a Chinese entrepreneur. The US e-commerce giant closed its operation in the East Asian country in June 2019.
Similarly, LinkedIn, a social network of America’s multinational technology company, Microsoft, launched its operation in China in 2014. In October 2021, it announced shutting down its social network, stating that complying with the Chinese state was becoming more challenging for it. Similarly, the San Francisco-based Airbnb, which operates an online marketplace focussed on short term homestays, announced shutting down its business activity in China this year on July 30.
But Yahoo, which launched its Chinese internet operations in 1999, had never had an unchallenged presence in the East Asian country. Exiting completely from the Chinese market in November 2021, the American internet company witnessed a decline in its popularity in the 2000s itself as Google increased its global market share. However, during its heyday, it had invested $1 billion to acquire a 40 percent stake in Alibaba Group. Closer of these internet-based companies and earlier exodus of major brands like Apple and Samsung have already dented the Chinese economy.
As per a survey carried out in June 2022 by the American Chamber of Commerce in China, 44 per cent American business owners said they have decreased or delayed investment in China. On the other hand, a survey conducted by the European Chamber of Commerce in China and that too in June maintained that 23 per cent of Western firms were considering moving operations away from the East Asian country. At the same time, the European Chamber of Commerce survey said, 50 per cent Western firms reported that business in China had become more politicised in 2021 than it had been in previous years.
“Increasing number of European businesses are putting China investments on hold and re-evaluating their positions in the market as they wait to see how long this uncertainty will continue, and many are looking towards other destinations for future projects,” Vice President of the European Chamber Bettina Schoen-Behanzin was quoted by Financial Times as saying. The British daily said if a US-China military conflict takes place in the event of Beijing’s attack on Taiwan, several multinational companies will withdraw their operations from China.
However, the British daily also said that the pace at which multinational companies might shift operations out of China could also hinge on the upcoming 20th CPC Congress. “If (there are) no policy changes on multiple fronts…we might be seeing an accelerated level of strategic reshoring, near shoring or offshoring to more friendly countries,” Financial Times quoted James Zimmerman, a China lawyer at Perkins Coie LLP, an international law firm based in Seattle in the US as saying.
From 2020 itself, investments from the US had started declining. As per South China Morning Post, investment from the US slumped by 23.8 per cent in 2020 in comparison to 2019, while investment from the European Union fell by 11.8 per cent from the previous year.
It is feared that the more China promotes its zero-Covid policy, the more uncertainty for businesses in terms of operations in the East Asian country. This will prompt multinational companies to leave the Chinese shore than risk meeting their demise in the country. China has though reduced quarantine time for international and domestic travellers, but sporadic lockdowns have kept business uncertainty elevated. The European Union Chamber of Commerce has rightly summed up China’s current situation. In its report published last month, the EU Chamber of Commerce said China is now seen as less predictable, less reliable, and less efficient. This has resulted in several multinational firms considering shifting their operations out of China to other markets.