Foreign Companies Continue to Expand and Invest in China in 1st Half of 2020
The International Monetary Fund (IMF) in its World Economic Outlook’s June update projects global growth for 2020 to fall to -4.9%. China’s growth is projected to be 1.0%. While this is lower than previous years, China is to be the only major economy that is expected to grow in 2020. The advanced economies including United States (-8.0%), Japan (-5.8), Germany (-7.8%), France (-12.5%), United Kingdom (-10.2%) are all projected to decline.
The reason for such disparity in the growth projection must be due to the speed with which China was able to overcome the virus compared to the other countries. While many countries closed down their economies for months and some have to close second time since the virus outbreak was not successfully contained, most of China was closed down only for several weeks and one week of that was for Chinese New Year.
It also helps that China has developed online infrastructure and has willing consumers to buy online. According to eMarketer report, while 88.3% of internet users in China will buy online in 2020, retail sales done online will rise to 41.2%. Compared that with USA, where 82.4% of internet users will buy online, but only 14.5% of total retail sales will be ecommerce. Most people in China did not need to set foot in actual brick and mortar store during the COVID-19 outbreak; however that is not the case for rest of the world.
Due to faster recovery and expected growth companies are continuing to focus on investing in China. Although overall Foreign Direct Investment (FDI) into China dropped 3.8 percent year-on-year in the first five months of 2020, it quickly recovered after COVID-19 outbreak. In the month of May FDI increased 7.5% to CNY 68.63 billion. In January-April period during the challenging economic situation, investment into the high-tech service industry increased by 2.7%. The key sectors for investment included information services (+46.9), e-commerce services (+73.8), and professional technical services (+99.6%).
Additional areas of expansion activity are Financial Services, where major foreign companies such as JP Morgan are expanding due to China’s reform and opening up. Another major industry is automotive and New Energy Vehicles (NEV) where we can see Volkswagen and Toyota making deals in China. Plus retail and consumer brands are moving to China to take advantage of Chinese consumer’s recovery.
Shanghai has been the center of brand and store openings. In the first quarter 61 first stores had opened in Shanghai. In May, the city saw 33 brands open debut stores or products. And in June for example, French Yves Saint Laurent, L’Oreal’s high-end cosmetics brand, opened its global flagship store in Shanghai’s Xintiandi Plaza.
The following 13 international companies have announced major expansions and investments into China in the first half of 2020:
Japanese automaker Toyota had announced several deals in the first half of 2020. It teamed up with 5 Chinese firms to form a Beijing joint venture to develop hydrogen fuel cells for cars. It also formed new joint ventures with Chinese electric vehicle maker BYD including new energy vehicle (NEV) joint venture. Plus Toyota owned truck maker Hino Motors agreed to form another JV to develop electric commercial vehicles such as trucks and buses.
Germany’s Volkswagen (VW) invested over 2 Billion Euros in China in the first half of 2020. It spent €1B to increase its stake to 75% in a joint venture with Chinese automaker JAC Motor. It also bought a 26% stake for €1.1B in Shenzhen listed battery maker Gotion High Tech, the third-largest Chinese lithium battery maker.
USA's PepsiCo completed 705 million US dollar purchase of Chinese snack brand Be & Cheery. The Chinese company Haomusi Food will become a unit of the owner of 7UP and Lay's brands with independent operation in the Asia Pacific region.
Denmark's LEGO revealed plans to open 80 new stores in China in 2020. The company will have 220 retail stores in China by the end of this year.
5. Hilton Hotels
American hospitality group Hilton announced plans to open 1000 sub brand hotels in China. Home2 Suites, which is recently created mid-high end brand, focuses on both families and business travelers.
United State’s based company Invista committed to invest 1 Billion US dollars into construction of a 400,000 metric ton adiponitrile (ADN) facility. It will be located in the Shanghai Chemical Industry Park. This is the largest capital investment ever for the company.
USA's Qualcomm Ventures, the venture capital arm of chip supplier Qualcomm, invested in 3 Chinese 5G startups. The three new investments were made in the fields of Internet of Things (IoT), AI and 5G applications.
French carmaker Groupe Renault opened its research and development center staffed with 350 researchers in Shenyang, Liaoning province. The company also has a design center in Shanghai, its 6th worldwide.
Starbucks announced plans to invests 130 million US dollars on a new roasting plant in China. This is the company’s largest investment outside of United States. The company will build an industrial park for coffee roasting, smart warehousing and logistics close to Shanghai in Kunshan, eastern Jiangsu Province.
American fast food chain Popeyes opened its 1st location in China. The flagship store is located on Huaihai Rd in Shanghai. It plans to open 1500 restaurants over the next decade.
USA’s Amazon announced its first renewable project in China. It plans to build 100 megawatt (MW) solar power farm in Shandong province, which is expected to generate 128,000 megawatt hours of clean energy every year.
Japanese company Sony through its American subsidiary Sony Corp. America invested 400 million US dollars in Chinese video streaming platform Bilibili. Sony now owns about 4.98% of shares. The two entertainment companies plan to collaborate on anime and video games.
13. GIC Private
Singapore Sovereign Wealth Fund GIC Private invested USD282m in GigaDevice Semiconductor, a Chinese NOR flash memory designer. The investment will give GIC Private a 2.17% stake in GigaDevice, becoming its 9th largest shareholder.