Pessimism surrounds the Chinese economy .. Is it descending into recession?

A host of political and regulatory issues are beginning to take away the dreams of many multinational companies operating in China.

These issues emerged due to President Xi Jinping's strict policies to confront "Covid 19" and his stance on Russia's war in Ukraine.

A British Financial Times article by journalist James Kinge explained that the unfulfilled expectations of multinational companies may herald a shift in how the global economy operates.

The writer stressed that direct investment in China by foreign companies is descending into the abyss, quoting Jörg Woetke, president of the European Chamber of Commerce in Beijing, as saying that unpredictability is pushing the European business community to suspend investments in China, "many of our members are now taking an approach Waiting and waiting for investments in China.

pessimism

The president of the European Chamber of Commerce, citing a survey of positions for this month of the chamber's 1,800 members, adds that 23% of them have started transferring their current or planned investments outside China, which is the highest level ever, and confirmed that 77% said that China's attractiveness as a future investment destination has fell.

The writer pointed out that this pessimism affected the American business community as well, as Michael Hart, president of the American Chamber of Commerce in China, warns that the travel hassles faced by foreign executives seeking to visit their operations in China, including the cancellation of flights, and the complexities of visas and quarantine Prolonged on arrival, it will lead to a "massive drop" in investment in two, three, or four years from now.

He added that the desperation and pain experienced by expat families locked in their apartments for weeks, in Shanghai and elsewhere, tempts many to leave China as quickly as possible.

A survey, conducted by the German Chamber of Commerce, found that nearly 30% of foreign employees have plans to leave the country.

The writer expected that what is happening in China portends a fundamental shift in how the global economy operates, as for decades, China has been one of the most important destinations for Western multinational companies seeking overseas manufacturing or increasing sales in the world's largest emerging market.

dwindling foreign investment

The writer revealed that a census of foreign investment projects established in China, which includes new factories and other plans announced by foreign companies, showed the lowest quarterly total in the first quarter of this year since records began in 2003.

He explained that some multinationals are still doing good business in China, but growing tales of sudden splits are making headlines, as Boeing's largest customer in China announced this month the removal of more than 100 of its 737 MAX aircraft from its fleet. Planned purchases in the United States.

It also led to multinational companies shifting their factories from China to Vietnam, Malaysia and other countries in Southeast Asia, Latin America and Eastern Europe.

Added to this - according to the writer - concerns about China's loyalty to Russia, which raised fears that Beijing would one day also become the military enemy of the West.

Recession due to closures

For its part, the American newspaper “The Wall Street Journal” reported that the Chinese economy fell into a recession caused by the emerging Corona Virus (Covid-19) pandemic last month, which raised questions about whether the stimulus measures planned by Beijing It can prevent a long-term stagnation.

A report issued by China's National Bureau of Statistics quoted consumer spending and industrial production falling in April, while growth in infrastructure investment, which Beijing had been betting on to boost growth this year, slowed sharply.

On the other hand, the main unemployment rate in China rose to its highest level in two years at 6.1%, which the American newspaper considered further evidence of the economic damage caused by the most stringent epidemic containment measures in this country more than two years ago.

Although the activity can recover quickly if the closure is eventually lifted, the damage caused by China's commitment to stem the outbreak of Covid-19 continues to affect the economy and remains, according to the newspaper.

The Shanghai Automobile Sales Association also reported a few days ago that the city-wide shutdown caused not a single car to be sold last month.

And the "Wall Street Journal" says in its report that one can feel the weight of the restrictions imposed due to the pandemic in the Chinese manufacturing sector as well, where factories are struggling to obtain workers.

This was accompanied by a decline in external demand for Chinese goods, in addition to the paralysis of production and disruption of supply chains.

But a Reuters report said Shanghai reopened a small part of the world's longest subway network on Sunday after closing some lines for nearly two months, while the city is paving the way for further lifting of strict COVID-19 lockdown restrictions next week.

The report pointed to the negative impact of the Shanghai closure and restrictions imposed on other cities on consumption, industrial production and other sectors of the Chinese economy in recent months, prompting decision makers to pledge support.