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'Golden Geese' fleeing from China! Is 'Dragon' on way to commit 'Xi-cide'?

TIOL - COB( WEB) - 820
JUNE 16, 2022

By Shailendra Kumar, Founder Editor

FOR 35-long years, China served as the 'key butler' of factory goods consumed by the world - intermediate goods by the industries and finished goods by global consumers! Its economic 'hair dye' began melting with the arrival of COVID-19! The geopolitical orchestra over the possible origin of the pandemic in the state-run Wuhan lab was merely the beginning of cracks in the trade 'Wall of China' with America and many others demanding an international probe by the WHO. Swooning economic meltdown and financial market swirls got exacerbated after Xi Jinping pitted China against America to become a regulator of geopolitical tectonic plates and, in his hasty strike-back strategy, made some extravagantly expensive decisions to decouple China a la delisting of Chinese tech czars from the US capital markets and also banning of the Chinese firms like Huawei Technologies and ZTE by America on security grounds! Then came a political regime change in the US but the economic and diplomatic tug-of-war continued to gather steam!

Many 'tentacles' of the Octopus strategy, including a tariff war, slipped into open conflict! Sacré bleu! An attritional phase rolled out here! Talk-to-my-hand attitude unfolded when the bubbling lava came to the surface over the Russian invasion of Ukraine and China extended its brazen support in 180 degree contrast to the West led by the US. Emboldened by the fact that economic sanctions imposed by the NATO countries have not paralysingly bitten the Russian autocrat in the short-run, China's latest hostile overtures in the Taiwan Strait unclothe its bellicose intent which was never mistaken by any country, leave aside the US. But the Chinese Defence Minister, General Wei Fenghe, left nothing for diplomatic niceties at the recently-held Singapore's Shangri-La Dialogue and quipped with steaming nostrils and surly facial expressions - "The PLA would have no choice but to fight at any cost and crush any attempt of Taiwan independence, safeguarding national sovereignty and territorial integrity." Such an irredeemably toxic policy statement akin to shooting in one's foot has further petrified foreign investors who fear Western sanctions and rapid decoupling of China from the American economy!

One particular set of investors who see China as their second home but are more horrified than the Western businesses, are Taiwanese. Over 12 lakh Taiwanese live in China. And they have pumped in over USD 190 bn in businesses over 30 years. Fujian, Guangdong, Jiangsu and Zhejiang attract a major swathe of Taiwanese money. Foxconn, a contract manufacturer for Apple, alone employs about 10 lakh workers in China. It built its first factory in Shenzhen in 1988. Taiwan accounted for one-sixth of foreign investments into China by 2008. Apple's three biggest suppliers in China are Foxconn, Pegatron and Wistron - all three are Taiwanese. Three of China's 12 most popular consumer goods brands by revenue are Taiwanese - Master Kong noodles, Want Want rice and Uni-President juices. Though China has come out with a new subsidy scheme to inveigle Taiwanese who were always discriminated against in government contracts but Taiwanese now clearly weigh geopolitical risks and their investments have nosedived by half since 2015. With the US imposing tariff on Chinese exports, a good chunk of Taiwanese have shifted their factories to South-East Asia and also Hungary. World's biggest chip-maker TSMC has shifted its business to America after Huawei was blacklisted by many Western governments. Expensive labour and stiff competition are other two factors which are admitted by the Taiwanese to be the ejecting force for their businesses out of China. The gilded era of Taiwanese investment in China is apparently over!

The final blow which eviscerated the dreams of American, European, Japanese and even Korean MNCs was the 'gingering' Zero-Covid policy of Mr Xi Jinping! It seems to have mortally fizzled the elation of the Western investors in the Chinese economy! However, the allure of China even today remains irresistible for many Western MNCs notwithstanding the recent push-back developments! China promises a huge market with ginormous prospects of profit but not without the perils of 'poisoned political chalice'! A 21st century case of Mackenna's gold! The recent trend is - Foreign investors have begun to flee China market in hordes! South Korean firms appear to be pioneering the caravan, truly nonchalantly! Upset over stifling and muscular Zero-COVID policy and the inconveniences triggered by the tariff war with the USA, companies ranging from Samsung, LG, Amorepacific to retail behemoth Lotte Group find that China is no more the land of 'gold nuggets'! Lotte, known for its supermarkets, is reported to have decided to shut down its China's head office. Amorepacific Group has over 1000 departmental stores but has decided to sell them off and peddle only online sales. Similarly, Samsung Display Co and LG Electronics are also moving out because of many unfriendly policy and 'artificially-designed' market forces! Many of them have said that the Chinese business flourishes on a frisson of schadenfreude (pleasure derived from another's misfortune)! To top it all, South Korea's new President, Mr Yoon Seok-youl, has left nothing for speculations by the diplomatic corps and has sided with the US which means a fresh bout of fury against the South Korean companies in China!

Given the irresolute character of Chinese policy-making and pretty high nonsense quotient, Western MNCs and stock market investors seem too adroit to ignore the amber light! A bankers' group on Washington, the Institute of International Finance, recently projected that foreign capital worth USDD 300 billion would slither out of China in 2022 - substantially up from USD 129 billion in 2021. Highly toxic political environment and caffeinated policy eco-system have already cost market capitalisation loss of over USD 2 trillion to its own tech giants listed outside China! The American Chamber of Commerce in China conducted a survey and issued a warning that travel hassles confronted by the expats would trigger precipitous fall in foreign investment in the coming years. The Biden Administration has already set up a committee which examines and permits flow of capital from the US to China! Apple has already begun shifting out a part of its annual production. Many US companies have begun onshoring their plants in Mexico bordering the US. With Mexico offering many spigots, it has emerged as an attractive destination for capital being ejected out of China. The story is no different for the EU. As per the EU Chamber of Commerce in Beijing, the darkening clouds of uncertainty have nudged EU businesses to put investments into China 'on hold'! The German Chamber of Commerce is on record with its observation that more than 30% of foreign employees have plans to leave China for good!

No new strand is found even in the Japanese story. Toshiba which had set up its factory in Dalian, has just downed its shutters. Besides heavy-handedness of the Communist Party and soaring hourly wages - USD 6.2 as against the half of it in Thailand, the geopolitical tensions and China's policy of hara-kiri in the South China Sea, many Japanese MNCs have shifted their production from China to India, Thailand, Vietnam and Indonesia. Oki Electric Industry which had set up its factory in Shenzhen 20 years back, recently stopped its production and shifted its capacity to Japan and Thailand. With Japan cushioning reverse-migration of such companies with huge incentives, the China-bound FDI which has been on decline since 2012, is likely to bottom out in the coming years.

What further complicates the unpredictability index of the Chinese 'oyster' is the landing of a new outlandish social engineering catch-all phrase - "Common Prosperity"! Mr Xi is sickeningly transfixed and besotted with this new philosophy! The least explained 'zombie enigma' is aimed at reducing social inequality, nannying fatigued workers to patronising customers! This has prompted the Xi Jinping government to swoop down on Chinese tutoring, gaming and financial firms which have lost billions of dollars in market value. Many foreign players have also been caught in the cross-hairs! The Chinese Goliath in the tech sector, Alibaba and Tencent, have suffered serious bruises on their financial statements and are not yet sure whether Mr Xi wants to further emasculate the Chinese tech oligarchs to promote his Common Prosperity paradigm! It is widely believed that such a weird brain-wave was responsible for no-support to the asphyxiating real estate behemoth Evergrande which defaulted to pay interest to its dollar bond holders!

All these strangely mind-numbing developments prompt me to risk a finger-in-the-wind speculation - Is it the fastest way for a healthy economy to commit 'Xi-cide', sorry, suicide! Or, Mr Xi Jinping would switch over to a new leaf after he gets another five-year term at the autumn summit of the Communist Party? Too difficult to get a drum of his mind! However, one thing the 'Dragon' experts among many think-tank institutions are more than certain about is - Mr Xi cannot now suppress his goosebumps of happiness originating from high-flying five-star studded Red Flag in Taipei! Mr Xi is convinced that the shelf-life of international laws is only as long and as much a superpower or a military power believes in it! Shock horror! Only the wall-clock can now herald the arrival of 'inflammatory bubble syndrome', marking the end of a glorious epoch of prosperity and peace! Till then, let's watch tub-thumping, drum-beating and melodrama aplenty, laced with high quotient of skulduggery, demagoguery and chest-thumping! For the world, it is indeed extra time to fortify the guard rails against natural as well as man-made calamities in the making! Gosh, highly bitter aji-no-moto lies in the future for humanity!