End of China honeymoon?

Over the past 30 years, MNCs have enjoyed an increasingly open world. Taking advantage of a unipolar globe with relatively free flows of capital, trade and ideas, MNCs tapped capital from wherever they chose, built businesses optimised for global supply and global demand, and served increasingly globalised customers. That may no longer be possible. In a world reshaped by the coronavirus pandemic, rising geopolitical tensions, renewed inflationary pressures and war, MNCs must reassess, reevaluate and reconfigure their businesses for a new era. And China is where some of the most dramatic reconfiguration may take place….

China and MNCs built a mutually beneficial relationship during the past few decades. Between 1990 and 2019, China’s real GDP grew at an average of almost 10% per year, contributing more than a quarter of global GDP growth, and average household income rose from about $750 to $13,000. That dynamism was a magnet for MNCs, which flocked to China to capture part of the growth.

But MNCs have started reappraising their relationship with China. A recent survey indicated that the share of US MNCs perceiving China as one of their top three investment priorities dropped from 77% in 2010 to 45% in 2022. Though many MNCs are continuing to invest in China, some are curtailing their operations there or rebalancing their investments toward other countries, and a few are pulling out of China altogether.