Can China break the vicious circle of economic slowdown and foreign capital exodus?

Chinese Workers

Chinese Workers

Is China’s economic slowdown causing the foreign capital exodus or vice versa? It is like the old question: which came first, the chicken or the egg? Let’s look at both scenarios.

Economic slowdown has caused capital exodus.

Taiwan media Want China Times says in its report “Foreign manufacturer exodus from China”, “With the Chinese economy slowing down and its population dividend diminishing, foreign capital has been exiting the market at an accelerated pace”.

They are saying that foreign capital exodus has been caused by high labour costs instead of slowdown.

In its report “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan”, Hong Kong’s Singtao Daily also ascribes the exodus to the lower labour cost in Southeast China.

Japan’s Citizen has closed its production base in Guangzhou while US Microsoft’s Nokia has planned to close its factory in Dongguan this year.

According to China’s http://www.ce.cn, Japan’s Panasonic, Sharp, Daikin and TDK have planned to transfer production capacity from China back to Japan, while well-known foreign enterprises such as Uniqlo, Nike, Foxconn and Samsung have set up new factories in Southeast Asia and India in preparations for the exodus.

Foreign capital exodus has caused the closedown of some large Chinese enterprises in Dongguan City that supply parts or processing products for foreign enterprises in China. Singtao says that it is estimated that about 100 more large enterprises will close down due to the exodus resulting in the unemployment of hundreds of thousands workers there.

The serious unemployment due to the exodus reduces demand in the Chinese market, and thus gives rise to economic slowdown.

Then it’s the exodus that is causing the slowdown.

No matter which came first, slowdown or exodus, slowdown will give rise to exodus, while exodus will give rise to slowdown. It is a vicious circle.

The difficult question is: How can China break that vicious circle?

Hu Jintao wanted to replace the development model that relies on export and excessive investment for economic growth by a model that relies on domestic consumption and innovation. He failed to achieve this reform due to resistance from conservatives and vested interests.

Now, it’s Xi Jinping’s turn. Will he be able to overcome the resistance? Let’s wait and see.

Source: Singtao Daily “Exodus of Foreign Enterprises Quickens: There Is Fear of Closedown of 100 More Large Factories in Dongguan” (summary by Chan Kai Yee based on the report in Chinese)
Source: Want China Times “Foreign manufacturer exodus from China”

 



Categories: Finance & Economy

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