Editor's note: On August 1, the cover story of the new issue of United States magazine The Economist, "Chinese companies are winning the Global South," was released, and China was once again the subject of this top academic journal, indicating that the West is closely watching China's every move in the Global South. While Western countries are turning domestically, Chinese companies are actively seeking to expand into overseas markets, and there has been significant growth in the Global South. But there's no denying that Western companies have a decades-long first-mover advantage in building global brands and hiring higher-quality local employees. The West must recognize that protectionist politics at home does not protect it from competition in overseas markets. The 24th issue of the "Regional and Country Dynamics" column of the Chongyang National People's Congress is now compiled and published as follows:
01
Chinese companies are winning the Global South
Released: August 1, 2024
Publisher: The Economist
Original link:
https://www.economist.com/leaders/2024/08/01/chinese-companies-are-winning-the-global-south
Since the end of the Cold War, corporate giants in rich countries have been the dominant force in global commerce. Today, consumers and workers in almost every country are influenced to some extent by multinational companies from the United States, Europe and Japan. As Chinese companies expand overseas at an alarming rate, these giants are under threat in industries ranging from automobiles to apparel. A new business competition has begun. Its battlefield is neither China nor rich countries, but the fast-growing economies of the Global South.
There are two forms of expansion for Chinese businesses. One is through a globalized supply chain. Greenfield FDI by Chinese companies tripled to $160 billion last year. Most of them are used to build factories in countries such as Malaysia and Morocco. One fact that has been less noticed is that Chinese companies are also pursuing the 5 billion consumers living in other developing countries. Since 2016, sales of China-listed companies in the Global South have quadrupled to $800 billion, and sales there have now surpassed those of rich countries. This is a troubling lesson for Western countries trying to deal with China's rise.
Chinese companies are looking overseas, in part because of slowing economic growth and fierce competition at home. From Indonesia to Nigeria, Chinese companies are eroding the dominance of multinationals everywhere. Half of the smartphones Africans buy are made by the electronics company Transsion. Mindray is a major provider of patient monitoring systems in Latin America. China's electric vehicle (EVS) and wind turbine manufacturers are expanding in developing countries, and nine of TikTok's top 10 markets are in developing countries.
However, the specific form of Chinese expansion is the result of the policies of the West and the Chinese government. As rich countries erect trade barriers to keep Chinese goods, including solar panels and electric vehicles, out, some Chinese companies are trying to circumvent restrictions by shifting production to the Global South. At the same time, sales in emerging markets themselves have become more attractive. The Chinese government's efforts to build diplomatic relations with the Global South, particularly through the Belt and Road Initiative, have facilitated $1 trillion in infrastructure investment, making the development path smoother for these companies. As the West turns inward, China is getting closer to the rest of the emerging world.
At a time when globalization is under attack, this is an important lesson for policymakers: trade can bring extraordinary benefits. The lives of billions of people will be improved by more choices of cheap, innovative and green products. Transsion's $100 smartphone means that some of the world's poorest people now have access to all the knowledge and services the internet has to offer at their fingertips. Inexpensive medical devices will save countless lives. Low-cost, climate-friendly technologies make it more likely that developing countries will control greenhouse gas emissions, even as they become richer and their populations grow.
Another lesson is how costly it is to protect existing Western multinationals from competition. Domestic competition means that Chinese companies, once ridiculed for producing counterfeit and shoddy products, have mastered a knack for producing goods for low-income consumers, while Western companies have never done so. Chinese companies are now at the forefront of electric vehicles and batteries, which are industries that wealthy governments are supporting at home. The notion that Chinese brands lack global appeal has been shattered by companies such as Shein, a fast-fashion company. Chinese companies have surpassed Japan multinationals in sales in the Global South. According to current trends, by 2030, Chinese companies will surpass European companies in sales and match those in United States.
For governments in the Global South, the lesson is more nuanced. Policymakers in host countries have the opportunity to enrich the lives of their consumers, create jobs, and foster innovation and competition. But to do so, they need to choose between protectionism and passivity.
As in Western countries, local industries that compete with Chinese companies seek special protection on the grounds that China likes subsidies. Brazil has already imposed tariffs on electric vehicles, and some Chinese exports face taxes in Indonesia. However, keeping Chinese products out of the market will deprive consumers of the benefits of choice and innovation, and protect low-productivity and stagnant local industries from competition. But policymakers should also beware of being too lenient. Today, most of the operations of Chinese companies in the Global South involve only final assembly. According to reports, many companies bring in Chinese workers instead of hiring locally. For developing economies to truly benefit, they should force Chinese companies to hire more local workers, share technology, and comply with local environmental and labor standards.
China is likely to agree to this. Over the years, multinationals in the United States and Japan have seen the benefits of training local staff and transferring know-how as they seek to be close to end markets, reduce costs, and avoid local opposition. Similarly, Chinese companies will see the benefits of taking root in emerging markets. Just as closer commercial ties at the end of the 20th century strengthened the soft power of United States and Japan, China could also exert greater influence in the Global South.
For decades, the West has been the world's most active advocate of globalization. However, the West has decided to turn domestically in order to fend off Chinese competition, the consequences of which will take years to become fully apparent. But the world does not stand still. Western multinationals have long been the main promoters of cross-border trade and investment, and the biggest beneficiaries of openness. Today, they are losing ground in the world's fastest-growing and most populous market. China has reaped the rewards.
02
Chinese companies are growing rapidly in the Global South
Released: August 1, 2024
Publisher: The Economist
Original link:
https://www.economist.com/briefing/2024/08/01/chinese-firms-are-growing-rapidly-in-the-global-south
As the shift in political sentiment is bad for Chinese companies, the expansion of Chinese companies in the markets of rich countries has become tricky. Chinese automakers have been subject to steep tariffs on both sides of the Atlantic. Western politicians have complained about Shein and Temu, two fast-growing Chinese e-commerce malls. TikTok, a short-form video app, faces a ban in the United States unless its Chinese parent company, ByteDance, sells it.
Some Chinese companies are trying to circumvent trade barriers by shifting production from China to other developing countries. This is an approach that has long been adopted by Chinese solar companies, which were effectively shut out of the United States market in 2012 due to anti-dumping duties. The United States imports little direct solar panels from China, but it buys a lot of solar panels from Southeast Asia, where the world's three largest solar module producers, JinkoSolar, Trina Solar and LONGi Green Energy, have built large factories.
▲Top 10 destinations for China's greenfield outward FDI in 2023
This strategy is being emulated by other industries, which is why Chinese companies have seen a surge in overseas manufacturing investment. While some factories are built in Western countries, most of the activities are in the Global South. As shown above, nine of China's top 10 greenfield investment destinations were located here last year. In July, Chinese electric vehicle company BYD opened a new car plant in Thailand, the company's first in Southeast Asia.
Trade data suggests that the new factories rely heavily on imported Chinese components rather than local supply chains. Among the top 10 destinations for greenfield FDI in China, imports of intermediate goods from China's manufacturing sector have nearly tripled over the past decade. Chinese shipping giant COSCO recently increased capacity between China and Mexico, in large part to send more cargo to factories near Mexico's border with the United States.
Johnson Wan of investment bank Jefferies believes that the main reason Chinese companies are building factories overseas is to avoid tariffs. Chen Guoli of INSEAD points out that proximity to China's strong supply chain is often a competitive advantage for Chinese companies. Admittedly, wages in Chinese factories have risen dramatically, quadrupling since 2010 to more than $8 an hour, well above the average in Southeast Asia. But thanks to China's huge economies of scale and well-developed infrastructure, domestic production is often still a cheaper option.
However, over time, the business case for overseas manufacturing will strengthen. Over the past decade, China's Belt and Road Initiative has channeled more than $1 trillion in investment into power networks, railways, and ports in the Global South, much of it through Chinese companies such as State Grid, CRRC, and COSCO. These investments make recipient countries more attractive production bases.
For Chinese companies, it doesn't hurt either. Western governments are beginning to crack down on their use of factories in the Global South to disguise the origin of products made primarily in China. In June, the United States Department of Commerce imposed tariffs on many solar products produced by Chinese companies in Southeast Asia that add little value to them beyond final assembly.
▲The foreign income of Chinese listed companies
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Established on January 19, 2013, Chongyang Institute for Financial Studies of Chinese University of China (Renmin University Chongyang) is the main funding project donated by Chongyang Investment to Chinese University and set up an education fund for operation.
As a new type of think tank with Chinese characteristics, Chongyang has hired dozens of former politicians, bankers, and well-known scholars from around the world as senior researchers, aiming to pay attention to reality, advise the country, and serve the people. At present, the Chongyang National People's Congress has 7 departments and 4 operation and management centers (the Center for Ecological Finance, the Center for Global Governance, the Center for China-US People-to-People Exchange, and the China-Russia Center for People-to-People Exchange). In recent years, the Chongyang National People's Congress has been highly recognized at home and abroad in the fields of financial development, global governance, major-country relations, and macroeconomic policy.