Cars move through traffic in Shanghai. China’s finance ministry said it will allocate as much as 2 billion yuan ($317 million) every year to support purchases of energy-efficient cars. Photographer: Nelson Ching/Bloomberg
China’s rising labor costs and a
deteriorating regulatory environment are prompting almost a
quarter of European Union companies to consider shifting
investments to other countries, a survey showed.
Twenty-two percent of 557 respondents said they may move
investment to developing economies including those in Southeast
Asia and South America, where doing business is easier,
according to a confidence survey conducted in February by the EU
Chamber of Commerce in China and Roland Berger Strategy
Consultants and released today in Beijing.
The views present additional challenges to leaders of the
world’s second-largest economy trying to sustain growth that may
slow to a 13-year low this year and is further threatened by the
prospect of Greece leaving the euro. Europe’s debt crisis is
damping exports while Premier Wen Jiabao’s extended curbs on the
property market have restricted domestic demand.
“The slowdown in China is going to have implications for
the rest of the world,” Eswar Prasad, a Brookings Institution
senior fellow and former head of the International Monetary
Fund’s China division, said today in an interview with Bloomberg
Television in Hong Kong. “But the big global risk of course is
Europe. It’s going to affect China. It’s going to affect
everybody else.”
The yuan weakened against the dollar for a second day,
falling less than 0.1 percent to 6.3480, near the lowest since
December, at 4:29 p.m. in Shanghai.
Growth Projections
China’s economy is forecast to expand 8.2 percent this year,
based on the median estimate of analysts surveyed earlier this
month by Bloomberg News. That would be the least since 1999.
Lawrence Summers, who was formerly U.S. Treasury secretary and
chief economic adviser to President Barack Obama, said today
that he wouldn’t be surprised if growth slows to less than 7
percent for at least a year during the next decade.
The Chinese government’s stimulus in response to the
nation’s economic slowdown will probably range from 1 trillion
yuan to 2 trillion yuan ($315 billion), half the size of 2008’s
package, Credit Suisse Group AG said yesterday. Economists at
China International Capital Corp., the nation’s biggest
investment bank, said last week they see expansion slowing to
6.4 percent in 2012 without policy stimulus.
The EU is China’s biggest trading partner and the country’s
largest export market. China accounted for more than a quarter
of global revenue for 26 percent of respondents, compared with
17 percent in 2009, according to the chamber report.
Western Development
The trends shown by the EU survey may undermine China’s
plan to boost development in western regions by offering foreign
companies incentives to relocate from the east coast, and may
threaten efforts to make the nation’s development “more stable
and inclusive,” the report said.
Foreign direct investment in China from the EU slumped 27.9
percent in the first four months from a year earlier, while
total overseas spending dropped 2.4 percent, according to
Ministry of Commerce data. “Let’s not think that the decrease
on FDI from Europe is completely due to the European crisis,”
Davide Cucino, president of the EU Chamber, said today.
“Probably there’s also something related to the business
environment.”
The average wage for Chinese urban workers at “non-private
enterprises” that include state-owned companies and foreign-
funded firms rose an inflation-adjusted 8.5 percent to 42,452
yuan in 2011, the National Bureau of Statistics said today.
Wages for urban workers at private enterprises rose 12.3 percent
in 2011 to 24,556 yuan.
Rising labor costs were perceived as the second “most
significant risk” to doing business in China, with the nation’s
economic slowdown in first place and concern about the global
situation ranking third, the survey found.
Remaining Pessimistic
“The perception that the regulatory environment will
continue to deteriorate for European enterprises suggests that
companies remain pessimistic that vested interests in China will
stymie reform,” the EU Chamber said.
Elsewhere in the Asia-Pacific region, Japan’s jobless rate
unexpectedly rose in April and retail sales fell for a second
month. Unemployment increased to 4.6 percent from 4.5 percent in
March, the statistics bureau said in Tokyo. Retail sales fell
0.3 percent from March, the Trade Ministry said.
A South Korean index of manufacturers’ confidence for June
fell from a nine-month high, according to the Bank of Korea.
Germany, Europe’s largest economy, may say later today that
inflation calculated using a harmonized European Union method
was 2.2 percent in May, matching the year-over-year pace in
April, according to the median of 19 estimates in a Bloomberg
News survey.
U.S. Confidence
U.S. consumer confidence was probably little changed in May,
economists predicted. The Conference Board’s index rose to 69.5
from 69.2 in April, according to the median forecast of 64
economists in a Bloomberg News survey ahead of a report due
today.
Prasad, who is also a professor at Cornell University in
Ithaca, New York, said his “sense is that China can manage the
slowdown — they have a lot of room to move in terms of
policies.”
The “world is going to be watching” what kind of stimulus
China employs, Prasad said. “The reality they face again is
that credit policy, pushing money out through the banks into
investment, delivers the bottom line really effectively.”
The EU Chamber said China’s cost advantages previously
offset concerns about doing business in the country. “However,
as China moves up the value chain and its domestic workforce
becomes more educated, demanding higher salaries, other
developing economies” have become more attractive, according to
the report.
Vietnam was highlighted for its low labor costs and South
America was considered to have easier market access and fair
treatment, while Southeast Asia and India were also seen as
“attractive emerging markets,” according to the report.
Rising Competition
More European companies are focusing on reducing costs to
stave off price pressures, and “much effort is being exerted to
maintain current market share” as competition rises from
domestic enterprises, the chamber said.
Some businesses are shifting operations inland from the
industrial east coast to reduce costs, the report said. Fifty-
two percent of companies surveyed said they will expand into
other provinces within “the next few years,” it said.
Even as costs and competition increase, European companies
see China as a “driver” of their global business, according to
the survey, with 74 percent of respondents viewing China as
becoming increasingly important in their company’s global
strategy and 78 percent saying they are “optimistic” about the
growth potential in China over the next two years.
Almost two-thirds of respondents said they were considering
new investments in China in 2012 compared with 39 percent in
2009, the chamber said.
–Kevin Hamlin. With assistance from Tracy Withers in Wellington,
Susan Li and Rishaad Salamat in Hong Kong, Zhou Xin in Beijing
and Shamim Adam in Singapore. Editors: Nerys Avery, Scott Lanman
To contact the Bloomberg News staff on this story:
Kevin Hamlin in Beijing on
khamlin@bloomberg.net
To contact the editor responsible for this story:
Paul Panckhurst at ppanckhurst@bloomberg.net
