In an economic briefing released on Monday (November 6th), the European Central Bank said that over 40% of many multinational companies surveyed by the European Central Bank are expected to relocate production to politically friendly countries in the coming years due to concerns about China related risks.
Reuters reported that after the COVID-19 epidemic and the Russian invasion of Ukraine disrupted the value chain, multinational companies stepped up discussions on changing production sites. However, there is currently no actual evidence of large-scale resettlement.
The European Central Bank has received first-hand confirmation of this issue by conducting a public opinion survey on 65 large multinational corporations with global operations. Among them, 49% of companies said they are exploring "near shoring" or moving their production facilities closer to their sales points.
And 42% of companies want to move some production operations to "AIA" or more popular locations.
The European Central Bank stated that two-thirds of all responding companies mentioned China on the issue of which countries pose or may pose risks to the supply chain of these companies' production sectors.
The briefing also stated that more than half of companies obtain critical materials from a specific country or a few countries, and almost all companies say that these material supplies are currently facing higher risks.
The European Central Bank said that the vast majority of surveyed companies have indicated which country or one of a few countries China is, and all companies believe that the risks associated with China have significantly increased.
The report states that "nearby outsourcing" has become a trend in recent years, but "friend shoring" is a new phenomenon, as only 11% of surveyed companies say they have pursued such a strategy in the past five years.
In addition, the Wall Street Journal reported on Monday that the relationship between the Chinese government and Western countries such as the United States has become cold and tense in recent years, prompting foreign companies to reconsider investing in China.
The report states that over the years, with the rapid development of China's economy, foreign companies have also invested the profits earned in China for new recruitment and investment. Currently, as China's economic growth continues to weaken and tensions between China and the United States intensify, foreign companies are starting to withdraw these profits from China.
According to the report, according to analysis of Chinese data, as of the end of September, foreign companies have withdrawn profits from China for six consecutive quarters, totaling over $160 billion. This rare situation indicates that China's attractiveness to foreign capital is weakening, and the continuous flow of profits has led to a decline in China's total foreign direct investment in the third quarter for the first time in 25 years.
Foreign companies withdrawing profits further put pressure on the yuan. Due to investors no longer favoring Chinese stocks and bonds, and the scarcity of new investment, the People's Bank of China has been working to slow down the decline of the renminbi. Since the beginning of this year, the Chinese yuan has depreciated by 5.7% against the US dollar and hit its lowest level in over a decade in September.
According to the report, recent surveys of companies in the United States, Europe, and Japan in China have shown that executives are pessimistic about new investments in China. The prospect of a war between China and Taiwan and China's strengthened regulation of foreign companies in China have also made these executives uneasy.
China has implemented an exit ban on certain foreign company employees, and earlier this year, it also raided the offices of consulting companies that provide services to multinational corporations, taking away and arresting Chinese employees. The Chinese government has also expanded the scope of application of the anti espionage law to address some actions considered foreign threats, which may include routine corporate activities.