Summary: The COVID-19 pandemic has dealt a heavy blow to the world economy. As China has brought the outbreak under effective control, its economy has become a major bright spot in the global economic gloom. International institutions have given positive assessments one after another, while foreign businesses have expressed confidence in China's economic prospects through one investment project after another. Chinese capital markets and assets are also sought after. In the face of these facts, fallacies such as the "decoupling theory" and "capital withdrawal theory" are collapsing on their own.
The COVID-19 pandemic has dealt a heavy blow to the world economy. As China has brought the outbreak under effective control, its economy has become a major bright spot in the global economic gloom. International institutions have given positive assessments one after another, while foreign businesses have expressed confidence in China's economic prospects through one investment project after another. Chinese capital markets and assets are also sought after. In the face of these facts, fallacies such as the "decoupling theory" and "capital withdrawal theory" are collapsing on their own.
International institutions are unanimous in their optimism. As China's epidemic prevention and control continues to improve, optimism about China's economic outlook has become a consensus among international organizations.
On June 8, the World Bank released its Global Economic Prospects report, stating that the COVID-19 pandemic could plunge the global economy into its worst recession since World War II, with the global economy expected to shrink by 5.2% this year. However, China's economy is expected to maintain growth. Ayhan Kose, Director of the World Bank's Prospects Group, believes that China's economic recovery will have spillover effects on the global economic recovery, and that continued policy opening-up and technological innovation will drive long-term global economic growth in the post-pandemic era. He expects China's 1% growth this year to drive 0.5% growth in the Asia-Pacific region.
The International Monetary Fund holds a similar view. Its World Economic Outlook report released on June 24 projects that China will be the only major economy to maintain positive growth in 2020.
Market research institutions are also generally optimistic about China's economic prospects. UBS believes that the economic support policies introduced by the Chinese government will gradually deliver greater results, and that China's economy will continue to improve in the third and fourth quarters of this year. HSBC Global Research noted that China's further opening-up and its commitment to creating a level playing field for all enterprises are conducive to increasing foreign investment in China. Recently, international management consulting firm Kearney released its 2020 Foreign Direct Investment Confidence Index report, in which China ranks eighth, first among all developing countries, and is also the only emerging market country among the world's top ten FDI destinations.
Investment projects show foreign investors' confidence. Foreign businesses are also generally confident in China's economy, and their way of expressing confidence is through real, hard cash investments.
On April 22, ExxonMobil's ethylene project in Huizhou, Guangdong, broke ground. This is the first major petrochemical project wholly owned by a U.S. company in China, with a total investment of approximately US$10 billion. Despite the epidemic and the highly unstable international commodity markets, ExxonMobil pushed ahead and made a major move in the Guangdong-Hong Kong-Macao Greater Bay Area, demonstrating its firm confidence in the Chinese market and the development prospects of the Greater Bay Area.
ExxonMobil is just one example of foreign companies increasing investment in China. Looking at mid-May alone: On May 17, Royal Dutch Shell and CNOOC signed a cooperation agreement for a phase-three ethylene project via "cloud signing" ceremonies in Guangzhou, Beijing and The Hague, with a total investment of US$5.6 billion. On May 19, Thailand's TCP Group announced a series of investments in its China business over the next three years, totaling 1.06 billion yuan, including setting up a new representative office in China, building a local team, and expanding a new production base in Huairou, Beijing. Also on May 19, Honeywell settled its emerging market headquarters and innovation center in Wuhan, which had just recovered from the epidemic. Zhang Yufeng, President of Honeywell China, firmly believes that "Wuhan is Honeywell's best choice."
These real investments by foreign companies add up to a striking set of figures: In the first five months of the year, China's actual use of foreign capital reached 355.18 billion yuan. Looking at May alone, actual use of foreign capital reached 68.63 billion yuan, up 7.5% year on year.
Behind each investment project lies foreign investors' eager expectation that the Chinese market will stabilize their global performance and help them withstand the impact of the epidemic. Li Fang, President and General Manager of Corning Greater China, said that all of Corning's major investment projects this year are in China. With leading products and innovative technologies, coupled with Chinese government support and customer collaboration, Corning is confident that the Chinese market will become the engine of the company's global growth.
Chinese assets are sought after. Another manifestation of foreign investors' optimism about China's economy is their heavy investment in Chinese capital markets and assets.
Morgan Stanley analysts believe that China's economic recovery is steady, and that the A-share market and the MSCI China Index are currently ahead of other major global stock markets, which is a very good indicator. They suggest that global investors increase their holdings of Chinese stocks over the next 6 to 12 months.
After the market close on June 19, FTSE Russell completed the inclusion of the final batch of A-shares in the first phase as scheduled, raising the inclusion factor of A-shares in FTSE Russell indices from 17.5% to 25%. The first round of the "A-share inclusion race" among the three major international index providers has come to a temporary end.
Market analysts believe that although the expansion of international index inclusions may slow for now, the pace of foreign capital inflows will not stop. For some time to come, A-shares, as one of the world's few high-value assets, will remain a key target for global investors. Since April, northbound capital has recorded consecutive net inflows. In addition to the stock market, China's bond market has also been included in major international indices such as the Bloomberg Barclays Index. Data shows that in recent years, overseas investors' holdings of onshore RMB bonds have been growing at an average annual rate of nearly 40%.
In overseas capital markets, a number of Chinese concept stocks are also highly sought after. In the United States, in addition to U.S. tech stocks, many Chinese concept stocks have seen significant price increases during the pandemic. JD.com, NetEase, Pinduoduo, Bilibili and other Chinese concept stocks have posted considerable gains.
Market analysts believe that China's vast consumer market is far from saturated and contains many investment opportunities. From a global perspective, the growth potential of Chinese concept stocks is relatively scarce.
The "decoupling theory" and "capital withdrawal theory" fall apart. The active increase of foreign investment in the Chinese market has debunked fallacies hyped by some Western politicians, such as "foreign capital withdrawing from China" and "U.S.-China economic decoupling."
On June 21, CNBC reported that a latest report by global consulting firm Rhodium Group showed that over the past 18 months, M&A transactions by foreign companies involving Chinese companies reached a scale unseen in a decade, in stark contrast to the "decoupling theory" touted by American politicians during the pandemic.
Jim Ritchie, General Manager of U.S. consulting firm Oliver Wyman, believes that from a business perspective, building resilient supply chains after the pandemic is crucial. "The Chinese market remains a very attractive total supply chain solution. Very few countries in the world can provide nearly all raw material sources like China... China's labor force maturity and talent pool are also very competitive."
A German media report titled "Will China Still Be the World's Factory After the Pandemic?" said that in the future, foreign companies will still generally choose to stay in China because they cannot afford to give up the huge market of 1.4 billion consumers. In addition, other countries cannot meet corporate needs in terms of skilled workers, infrastructure and raw materials as China does. Morris Cohen, a professor at the Wharton School, said bluntly: "I don't think China's position as a major manufacturing supplier will change. Perhaps some industries will change, but overall, there will be no structural change." In response to market speculation that "Japanese companies are withdrawing from China," Singapore's Lianhe Zaobao published an article on May 22 saying that Japanese companies will not easily or find it difficult to leave China. The report said that Japanese and Chinese companies share a complementary relationship of coexistence and mutual prosperity in innovation, product quality improvement and cost reduction. For Japanese companies, China has a complete supply chain and abundant skilled workers that are difficult to replace in other markets.