As China-U.S. trade frictions become intensified, American companies in China and Chinese companies in the United States are in fear that they would be affected by trade frictions. For China, which is less advantageous in trade disputes, at this stage there should be early estimation on the possibility of American companies pulling out and returning to the U.S.
Currently, there are not many American companies in China, not more than 1,000 approximately. However, the seriousness of the problem is not determined by the number of companies, but depends on the actual impact of the flow of American companies in the world market. From the perspective of investment scale, there is huge difference between the statistics of China and the United States. According to the statistics of the Chinese customs, U.S. direct investment (FDI) to China in 2017 was US$3.13 billion. According to the Rhodium Group, U.S. companies invested US$14 billion in China in 2017 ($13.8 billion in 2016). However, the statistics of Rhodium Group also include the scale of capital mergers and acquisitions.
From the industrial perspective, according to research by the Rhodium Group, U.S. investment in China is dominated by ICT (information communication technology), entertainment, automotive, agriculture and food, and real estate. Among them, the first four industries are growing faster. Medium-sized industries are machinery, energy, health, materials, etc.; investment in machinery and energy industry among these remains stable, but investment in health and materials industries has shrunk. Smaller scales investment includes electronics, finance, aviation, transportation, and consumer industries.
Anbound's researchers believe that it would be difficult for the American companies to return. The withdrawal of funds involves the adjustment of the market system and the resetting of production lines, which will incur huge costs. After returning to the United States, whether American companies can find workers in the United States with very low unemployment rates is an unresolved issue. At least in the manufacturing sector, such obvious problem would appear. It should also be pointed out that the return and outflow of American companies is not the same thing. We believe that some American companies will not return to the United States, but relocate to other low-cost emerging market countries, which will lead to the outflow of American companies.
For American companies, the more critical issue is not the above-mentioned problems, but whether they are ready to give up the Chinese market. Even if American companies may move out of China, can the huge Chinese market that worth US$10 trillion be abandoned? We believe that American companies will consider this carefully. According to the U.S. Bureau of Economic Analysis (BEA), total sales of American companies in China in 2015 were US$373 billion, including US$223 billion for Chinese subsidiaries and US$150 billion for U.S. exports to China. In the future, with the expansion of market scale and the improvement of demand quality, the Chinese market means huge profits and growth for any enterprise. Therefore, for American companies, leaving the Chinese market will be a difficult decision.
Looking at the presence of American companies in the Chinese market, one can understand what it means to American companies to abandon the Chinese market. For American companies in China, software and hardware companies include Hewlett-Packard, Dell, General Electric, Cisco, Oracle, Qualcomm, Amazon, Microsoft, Apple, and Applied Materials. The GPS navigation market includes Google, Lockheed Martin (subsidiary) and so on. In the courier industry entails UPS, FedEx; in the automotive industry there are Ford, General Motors, Chrysler and so on; while Caterpillar is prominent in the field of construction machinery. The food and beverage retail industry include Coca-Cola, Pepsi, Starbucks, KFC, McDonald's China (acquired by Chinese companies), Burger King, Wal-Mart. The clothing category includes North Face, Nike, Adidas, Jordan, Saucony, etc. In the financial industry we see Goldman Sachs, JPMorgan Chase, Citibank, DuPont, American Express and so on. In the energy industry there is Chevron. For home services, we see Stanley Black & Decker and so on. Brands in the fields of daily chemical and medical include Olay, Estee Lauder, Clinique, Kiehl, Lancome, Procter & Gamble, Johnson & Johnson, Revlon and others.
From the above-mentioned corporate brands, on the one hand, we can feel the strength of American companies that cover all aspects of Chinese life; on the other hand, we can also see the importance of the huge Chinese market to American companies.
Final Analysis Conclusion:
Regarding the impact of trade frictions on American companies, Anbound points out that the most difficult challenge for American companies in China is how they have to face the Chinese market. We believe that most of them, and not a small part of them, simply cannot abandon the Chinese market, otherwise, they would have left if they could.
