Beijing: China’s economic slowdown and the country’s high-handedness in tackling COVID-19 are pushing the investors to move out of the country and shut down their businesses.
This comes amid signs of China’s economic slowdown as the People’s Bank of China has decided to reduce the required reserved ratio to boost lending through commercial banks, as per reports. A few days prior, the International Monetary Fund (IMF) also slashed China’s growth forecast for this year.
Kristaline Geogieva, the Managing Director at IMF, said that China still has time and room to adjust its policies accordingly as it is essential for them to counter their economic slowdown for global recovery, as per reports.
However, Chinese President Xi Jinping continues his façade by stating that China’s economy was resilient and that there has been no change to long-term trends yet.
With its cheap and abundant manpower, China has long enjoyed its role as the so-called world’s factory, however, this seems to be changing with time.
Earlier China used to offer lower production costs to lure global brands and retain domestic manufacturers for decades but now a gradual rise in expenses has been weakening China’s role as a go-to source of production for companies over the past five years.
Multinational firms moving away from China include some of South Korea’s largest businesses, including Samsung, LG, and Hyundai Motor. These firms have relocated factories from mainland China to Southeast Asian countries such as Vietnam and Indonesia in recent years.
The relocation trend began years ago and was further fuelled by desires to avoid tariffs stemming from a trade war between China and the US. In addition, the pandemic has made matters worse for China.
Supply-chain disruptions for critically important goods such as computer chips have forced some economies to bring production home. Moving away from China helps them safeguard the supply of essential resources in the face of geopolitical tensions and uncertainties.
Park Sang-min, the vice-chairman of the Korea Chamber of Commerce in Shanghai, said that since large Korean businesses have production facilities outside Shanghai, they have been less affected. But small and medium-sized enterprises are struggling with “great difficulty”.
“The companies that remain in China are those that need to utilize China’s market,” he said. “But measures such as sudden lockdowns worry the companies because they create a destabilizing business environment. There could be firms that are considering relocating because of this factor,” he added.