Asian companies remain committed to China despite economic headwinds, trade tensions
As China saw a sharp drop in inbound foreign direct investments in the first four months of 2024, top leaders have stepped up engagement with foreign companies.
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HONG KONG: China, the world’s second-largest economy, remains a market too big to ignore for many Asian companies even as trade tensions with the west continue to simmer.
The Chinese economy has been battered by headwinds, including a protracted property crisis widely seen as the single biggest stumbling block to a full-blown economic recovery.
Latest data from a China Central Television report showed that despite a 19.2 per cent increase in new foreign-invested companies setting up in China in the first quarter of 2024, the country’s inbound direct foreign investment recorded a year-on-year drop of 28 per cent during the same period.
Nevertheless, firms like OCBC told CNA that they have re-committed for the long haul in China.
Singapore’s second-largest bank is investing HK$1.5 billion (US$190 million) to modernise its platforms and products, as well as hiring 300 new tech talents to support growth in China.
The timing is fortuitous, with Chinese leaders stepping up engagement with foreign companies in recent months.
This has prompted speculation that reviving foreign investments and the economy will top the agenda of the long-anticipated Third Plenum set for July – the meeting of the Community Party’s Central Committee where major economic policies and reforms were historically launched.
It follows last year’s trajectory, as China amped up the ante to draw foreign investors by extending a tax exemption policy for foreign talent along with a tax refund policy for overseas research and development firms.
During a recent meeting with Samsung chairman Lee Jae-yong in Seoul, Chinese Premier Li Qiang said foreign-funded companies are an “indispensable force” for his country’s development.
This came as western officials threatened new trade barriers and tech restrictions, accusing China of industrial overcapacity and unfair trade practices.
OCBC SHARPENED FOCUS ON GREATER CHINA
OCBC’s group CEO Helen Wong told CNA: “We see a lot more intra-Asia flow. We see a lot more north to south.
“As we look at what are the challenges in the world, we will continue to shape our strategy accordingly - putting investments into areas that are not so much impacted by trade, so that investors from the north, as they start in Singapore, the rest of ASEAN (Association of Southeast Asian Nations) will be able to serve them,” she added.
Nearly a year has passed since OCBC launched a rebranding campaign to sharpen its focus on Greater China.
Revenue from Chinese investment into ASEAN grew 39 per cent from just a year ago. This includes Chinese companies setting up in ASEAN, or referrals back to China.
According to the banking group, it brought in US$370 million in revenue last year, putting it on track to achieve the target it set last July to capture US$2.2 billion in incremental revenue from 2023 to 2025.
Ms Wong attributed this to new payment methods and technology, which have driven cross-border QR transactions up by seven times since last September.
It was the first bank in the country to offer global cross-border payments through Alipay+. Customers travelling to places like mainland China, Malaysia and South Korea can pay at merchant stores in the Chinese payment app’s global ecosystem using the OCBC Digital app.
“The growth of new Chinese companies heading to Singapore and the region, and the number of customers with our bank have increased by 45 per cent,” she noted.
“Because of that flow of money across Greater China and ASEAN and the investment opportunity, we’re able to turn up with additional revenues.”
“TOO BIG TO IGNORE”
Other Asian companies shared similar sentiments.
Mr Hyuk-Tae Kwon, co-founder and CEO of Singapore-based venture capital firm Pine Venture Partners, said China remains the nearest market, and one of South Korea’s largest import and export partners.
“It’s too big to ignore,” he added, even as geopolitical concerns drive some companies to redistribute their assets to the region.
Mr Kwon said China’s emphasis on AI and innovation sends a promising signal to investors.
“There are a lot of opportunities I also see in China regarding ageing population, healthcare, food tech,” he noted.
“And so if you have the right technology and business models that have worked in smaller markets, like South Korea and Singapore, there's a lot of relevance that can be ported over to China.”
Nevertheless, he acknowledged that operating in China is a whole different ball game, as each region could have different regulations.
“I think the level of complexity in terms of operating in China has gone up significantly. I would recommend many of my clients to find a capable and trustworthy partner as a new strategy, instead of trying to do everything on your own in China, because the changes are too fast, too drastic,” he said.
“With the right distribution partners, you may have a higher chance of success in today's business environment.”
As for those who got through Beijing’s strict curbs during the COVID-19 period and remained in China, Mr Kwon said they will reap the benefits of China’s eventual economic recovery.
ADAPT TO CHANGING RULES, TRENDS
While waiting for the tide to turn, overseas partners have had to adapt to changing rules and trends.
Thai Wah Public Company CEO Ho Ren Hua said this was most telling as China emerged from COVID-19.
He told CNA that China has increased the emphasis on food security, for instance, all the way down to the quality and design of the supply chains.
“That refers to traceability in terms of source and origin. And we've been working a lot with our procurement teams, our supply control, all the way to the farm,” Mr Ho said.
His Thailand-based food company, which exports tapioca to China, currently has operations in Shanghai, Qingdao and Guangzhou.
Mr Ho noted that Chinese consumption habits have also changed, especially as digitalisation accelerated during the pandemic.
“We look at different types of trade channels, starting with modern hypermarkets to direct to consumer platforms, to food retail brands,” he added.
“Food ultimately is an industry of taste, texture and preference. The Chinese consumer becomes more picky about different types of tastes, texture, flavouring. So there's still a lot of opportunity for food in China in the long term.”
With these trends on the rise, Mr Ho believes the deep connection between Southeast Asia and China will withstand any geopolitical storm.
“We don’t foresee in the near future (that there will be) significant tariffs or trade barriers between Southeast Asia and China, because there’s really a strong mutual dependence between the Chinese economy and Southeast Asian economies,” Mr Ho said.
“The flow of food products will continue to grow both ways.”
