Economic rebound prompts investment, new goals for foreign multinationals

China's steady economic rebound, encouraging signals and efficient policies introduced during the two sessions are boosting confidence among multinational companies operating in the country.

Believing that China's growth this year will outrun most major economies, despite headwinds, executives said they are seeing many more opportunities in areas such as healthcare, consumption, advanced manufacturing and innovation-driven development.

Eager to turn those prospects into reality, foreign companies are ramping up investment, expanding their business lines and chalking up medium-to-long-term plans for steady growth with a rosy view of China's high-quality economic upgrade in the coming years.

Ulrich Stefer, chief financial officer of Bayer Group Greater China, said: "China, without any doubt, will play a crucial role in impacting global growth this year as the world's second-largest economy. We notice that various international financial institutions and investment banks have raised their predictions for China's economic growth this year."

Highlighting the country's massive market, sophisticated industrial system, strong supply chain competitiveness and the improving business environment, Stefer said, "The Chinese market remains extremely attractive on a far-reaching level for multinational companies, including Bayer, to join and expand their investment."

He added that the multimillion dollar expansion project of Bayer's Beijing pharmaceuticals plant will be completed this year. The plant is expected to boost the company's production capacity for prescription drugs by 40 percent and greatly improve its ability to meet the medical needs of Chinese patients.

Post-COVID growth

The strong commitment to the Chinese market follows the country's emphasis on post-COVID-19 economic recovery, with a GDP growth target set at about 5 percent for this year. According to the Government Work Report, submitted to the National People's Congress for deliberation earlier this month, China will focus on intensified and more targeted macroeconomic policies to promote stable growth.

Economists at Morgan Stanley have even forecast that China's economy is expected to grow by 5.7 percent this year, accounting for about 40 percent of global economic growth.

Hou Yang, chairman and CEO of Microsoft Greater China, said multinationals are joining policymakers in hoping that measures announced at the two sessions will effectively reboot China's economic development dynamics, both internal and external.

"At the highest level, Microsoft believes that the digital economy will regain traction in China, start to accelerate again and become a primary force driving the country's development," Hou said.

He added that the company has unveiled a number of cutting-edge initiatives and plans to recruit more talent to accelerate the development of its local ecosystem partners and better surf the country's digital transformation wave, especially in the manufacturing, healthcare, automotive and retail sectors.

"With the recent policy direction, as well as the enduring resilience and vitality of China's economy, multinational companies are once again evaluating opportunities to invest in and start businesses in the country," Hou said.

That sentiment is in line with the latest data. Foreign direct investment in actual use hit more than 1.23 trillion yuan ($176 billion) last year, a rise of 6.3 percent from 2021.

Wei Jianguo, a former vice-minister of commerce and vice-chairman of the China Center for International Economic Exchanges, said that despite subdued global FDI sentiment, China will become more attractive to foreign companies this year thanks to its wider opening-up and the anticipated rebound in economic activity.

Wei predicted that FDI is likely to see double-digit growth to reach $220 billion to $230 billion this year, probably surpassing the United States as the latter faces economic slowdown and perhaps even recession. According to the United Nations Conference on Trade and Development, China was the second-largest recipient of FDI in 2021, behind the US.

The Government Work Report prioritized the recovery and expansion of consumption, so foreign companies in the fields of cosmetics, toys and food are also eager to better tap into China's rebound.

Fabrice Megarbane, president of L'Oreal North Asia Zone and CEO of L'Oreal China, said: "Overall, I am optimistic, confident and ambitious in the short and longer terms about China. The country's reopening is one of the patches of blue sky, while L'Oreal is preparing for the beauty market rebound."

He added that consumer traffic and purchases have shown positive signs since the start of last month, so he expects a progressive rebound from the second quarter and to see consumer enthusiasm bounce back in all categories. "China is the new investment landmark. We will invest in China continuously in the future and empower the open (local) innovation ecosystem," Megarbane said.

Expanding footprints

Meanwhile, Denmark's Lego Group is so sanguine about China's prospects that it is expanding its footprint in the country significantly this year.

"We expect to open another 80 new retail stores in China this year. Currently, more than 40 percent of our stores are located in third-tier-and-below cities, which have huge potential for growth," said Paul Huang, general manager of Lego China.

Rising sales in China are driven by the 200 million-plus people in the country ages 0 to 14, by economic growth and by the rising purchasing power of the growing middle-income group, Huang added.

That optimism is also shared by Zhou Tao, president of Royal DSM China, a nutrition and bioscience company based in the Netherlands. Zhou was thrilled to see that the Government Work Report emphasized the importance of boosting market confidence, with significant measures in place to ensure economic growth.

"We expect to roll out a series of health enabler and sustainability initiatives with joint collaborations with local partners in China this year to contribute to the Healthy China 2030 strategy," Zhou said.

Positive signs

Enthusiasm has also been boosted by the fact that domestic consumption is expected to be the main driving force behind China's steady growth this year.

Wu Chaoming, deputy director of the Chasing International Economic Institute, said China's retail sales are likely to grow by between 7 and 11 percent this year, given the optimized COVID-19 containment measures, the rebound in economic activity, the release of household savings and a low comparison base.

As the world's second-largest consumer market, China boasts a middle-income group in excess of 400 million people, with retail sales totaling 43.97 trillion yuan last year, data from the National Bureau of Statistics show.

China's pledge to accelerate the modernization of its industrial system is also encouraging foreign companies to double down on the world's largest manufacturing powerhouse, despite the US government's attempts to decouple in key supply chains.

Jason Juang, managing director of HP Greater China, said: "HP has been in China for 40 years. We were the first US-based company to establish a high-tech joint venture here. Looking forward, China's growing market, rapid technological development and advancing industry are paving the way for long-term sustainable growth."

Some media reports claim that Dell, HP's US peer, is moving its supply chain out of China, but HP said it has no such plans.

"China is a very important part of our supply chain, and it will continue to be for the foreseeable future. We will continue to increase investment in China and deepen cooperation with local partners," Juang said.

Speaking on the sidelines of the two sessions, Jin Zhuanglong, minister of industry and information technology, the country's top industry regulator, said that though challenges exist, China has confidence in the steady recovery of its huge industrial economy.

He added that China will make more efforts to speed up the transformation of traditional industries — which play a vital role in building a modern industrial system — and move the manufacturing sector toward higher-end, smarter and greener production.

Rajat Agarwal, president of Henkel Greater China, said, "China's focus on sustainable growth and industrial modernization presents opportunities for multinational companies like Henkel to foster innovation and sustainability."

According to Agarwal, the German company's new inspiration center is under construction in Shanghai with an investment of 500 million yuan. When completed, it will be the second-largest Henkel facility of its kind in the world.

The new center, coupled with its first application engineering center in South China, which opened last year, will further enable the company to accelerate the speed and depth of its innovations in China for China, he added.

Focus market

Schott, a German producer of specialty glass and supplier of pharmaceutical packaging, also plans to expand production in China. It has increased its investment budget in the country for the fiscal year 2023 to 55 million euros ($58 million). "China is one of the fastest-growing countries with record-breaking financial results and it remains a focus market for future growth," Frank Heinricht, Schott's CEO, said.

Denis Depoux, global managing director of consultancy Roland Berger, said that with the optimized COVID-19 containment measures, the winter of 2022-23 has to a certain extent seen "a replay of the 2021 situation when China's supply chain supported the economic recovery in Europe and in the US because of its flexibility and availability".

China's industrial and supply chains have improved significantly, as domestic and foreign companies invested heavily in modernizing their local production systems, Depoux said.

According to the Ministry of Industry and Information Technology, China ranks first globally in terms of output for more than 40 percent of the world's 500 major industrial products.

Moreover, about 570 Chinese industrial companies are among the world's top 2,500 in terms of research and development investment, boosting their ability to support supply chains, the ministry said.

Depoux, from Roland Berger, said, "China has demonstrated its innovation capability and is leapfrogging in several fields, gaining leadership globally in areas like the electric vehicle chain, from batteries to charging infrastructure, photovoltaic panels, wind turbines, nuclear and telecommunications equipment."

Liu Wenqiang, deputy head of the China Center for Information Industry Development in Beijing, said that as China strengthens its R&D prowess, it will continue to move up the industrial value chain, which will further increase its appeal in high-end manufacturing.

Yu Feng, president of Honeywell China, said this year's Government Work Report emphasized that China will deepen its efforts to attract and utilize more foreign investment, and ensure national treatment and improve services for foreign-funded companies.

"This will give new impetus to the ongoing development of foreign-funded companies in China, including Honeywell," Yu said. "We have great confidence in both China's high-quality development and Honeywell's business in China."

Wang Hao, president of Siemens Healthineers Greater China — a German healthcare equipment provider — said: "Today, China's booming medical device market has leaped up to become the second-largest in the world. And the public demand for high-quality medical services is growing, which has boosted the confidence and determination of foreign companies, including Siemens Healthineers, to further develop in the Chinese market."

Meanwhile, Siemens Healthineers' laboratory diagnostics plant in Shanghai will be put into operation later this year with 3 billion yuan of investment, he said.

Green development

With green development high on the government's agenda, multinationals such as Brazilian mining company Vale also see room for deeper cooperation.

Xie Xue, president of Vale China, said the company was excited to see that the Government Work Report demonstrated that the country will continue to fully implement its national strategy on the response to climate change.

"Vale sees a very bright future in our partnership with China in energy conservation and carbon reduction, as well as green transformation," she said. "We are looking forward to continuing our close cooperation with China for many more years to come and embracing a carbon-neutral, green future together."

Source: China Daily