The day Chinese new Premier Li Qiang told CEOs of multinational companies at a conference in Beijing that “no matter what happens,” China will maintain steady economic growth, a South China Morning Post report on March 27, said Alibaba founder Jack Ma has returned to China after ending more than a year-long stay outside the country.
The Hong Kong-based English newspaper did not say when Jack Ma returned to China, but citing sources, said the 58-year-old business tycoon visited a school he set up in Hangzhou, the home of his technology firm Ant Group.
In the business circle, this is seen as a major development as Jack Ma returned to China when Li Qiang, the country’s number two leader after President Xi Jinping, is trying to put life in the declining economy by promising to safeguard the interests of entrepreneurs. In China, business confidence is still shaky, while spending and investment by consumers and private businesses have declined significantly.
According to Forbes, the People’s Bank of China in the middle of March “surprised markets with a 25 basis-point cut in the reserve requirement ratio for financial institutions.” The step was taken to inject life into markets.
The Chinese economy grew 3% in 2022, badly missing the official target of around 5.5%. It was the worst performance since 1976—the final year of Chairman Mao Zedong’s decade- long Cultural Revolution that shattered China’s economy.
Investors who used to rush to China to set up their businesses, are shying away from funding in the country’s market. Between July and December 2022, China attracted only $42.5 billion Foreign Direct Investments. “That constituted a 73% decline on the year, the sharpest drop dating back to data in 1999,” Nikkei Asia said.
Growing geopolitical tension between the US and China over Taiwan, South China Sea and other parts of the Indo-Pacific is said to be taking a huge toll on business sentiments in the East Asian country. According to New York-based Rhodium Group, there has been no new entry by European companies in the Chinese market. Those who continue to invest in China, the research firm said, are busy in “internal decoupling” with companies including large automakers segregating their Chinese and non-Chinese supply chains to limit risks such as technology leaks.
By the end of 2022, as per Nikkei Asia, the number of foreign manufacturers and other companies in China’s industrial sector was down 0.5% on the year, the first decline in three years. Sony Group moved most of its camera production from China to Thailand. Other big international brands like Apple, according to The Wall Street Journal, have speeded up their plans to move some China-based production lines to other Asian countries like India and Vietnam. While Nike, Adidas, and Samsung have already shifted some of their production lines out of China to Vietnam.
On the other hand, in the area of consumer spending, there has been some upswing, but the country has yet to see a strong rebound, CNBC said in its recent report. In 2022, retail sales had slumped 0.2% to 43.97 trillion yuan ($6.28 trillion). Earlier in February, Chinese authorities said they will draft policies with an aim to stimulate spending on housing and unlock consumer savings that have built up during the pandemic.
In China, sales of residential floor space dropped by nearly 27% last year, while real estate investment fell by 10%, CNBC said. The International Monetary Fund recently asked China to do more to fix its real estate problems. The real estate market contributes to about a quarter of China’s GDP and has proved to be a drag on the country’s economic growth.
But more worrisome is joblessness in China; unemployment, especially among youth, has been a major sticking point in the country. In the urban areas, unemployment among youth was around 13% even before the Covid hit the country. Last year, it peaked with nearly 1 in 5 of those between 15 and 24 being out of work, DW, a German public broadcaster said in its recent report.
Under this gloomy economic outlook, the Communist Party of China finds itself under immense pressure to revive growth. China’s new Premier Li Qiang’s promise to CEOs of multinational companies during a conference on March 27 that Beijing will treat private sector companies on par with state-backed companies is seen in this context.
Yet it is still to be known whether Alibaba founder Jack Ma’s return to mainland China after ending more than a year-long stay outside the country, has anything to do with Beijing’s attempt to woo back business leaders to create wealth in the country and thus, help it revive the growth. However, while reading the tea leaves, it appears that Jack Ma may have received some signals from the Chinese leaders to infuse positive sentiment in the market.
Because, China’s largest technology conglomerate, Alibaba Group on March 28 decided to restructure its businesses into six independently run entities: Cloud Intelligence Group, e- commerce under Taobao-Tmall, Cainiao’s smart logistics operations, Local Services Group, Global Digital Business Group and Digital Media and Entertainment Group, said the South China Morning Post. Once bitten, twice shy Beijing seems to be ready to move some extra miles to arrest a slump in the business confidence which has been a major cause of economic woes in the country. But when tension between China and the US is escalating and fear of Washington DC taking strong punitive measures against Beijing hangs like Damocles’ sword on it, especially when it attacks Taiwan, in this backdrop how investors or businessmen will throng China to set up their new businesses is a million-dollar question.