By Trefor Moss
SHANGHAI--Relations between the U.S. and China are at their
lowest point in decades, and the Covid-19 pandemic has rattled
consumers the world over. U.S. companies and brands are doubling
down on China anyway.
To understand why, look no further than the hundreds lined up
around the block in central Shanghai, many of them defying
coronavirus social-distancing advice, to get their hands on chicken
sandwiches from Popeyes Louisiana Kitchen.
Popeyes, the latest U.S. brand to plant its flag in China,
opened on Friday, the first of 1,500 planned locations in
"Chinese people still like America and American brands," said
18-year-old Oliver Kong, one of those waiting in line outside the
new Popeyes. " McDonald's is my favorite, but I'm excited to try
From Popeyes to Walmart Inc., Tesla Inc. to Exxon Mobil Corp.,
companies are betting that the country's long-term growth potential
still outweighs the mounting case against further
expansion--including geopolitical tensions and slowing growth.
While the pandemic has spurred businesses to rethink supply chains
to reduce dependency on China, companies that are producing in
China for Chinese customers are bulking up their local
Concern about China's own rising domestic players is an
increasingly important factor, too. Yet China bulls argue that
committing resources to the country is still worth it.
"If you're not active in this market, then China will come to
your market. It's better to battle them here than wait until they
show up on your doorstep," said Jörg Wuttke, president of the
European Union Chamber of Commerce in China. Though some companies
would halt China investments until the long-term picture becomes
clearer, "we have to be optimistic about investing," he said.
The Chinese economy shrank 6.8% in the January-March period, its
first contraction in four decades as the country reeled from the
coronavirus. Economists warn the recovery will be shaky, marked by
surging unemployment and dwindling consumer confidence.
The political risks of operating in China--which have risen as
leader Xi Jinping reasserts the state's grip on society--have been
ratcheted up further by the two-year trade war between Washington
and Beijing, and more recently by public recriminations over the
origins and handling of the coronavirus crisis. Speaking on Fox
News last Thursday, President Trump said the U.S. "could cut off
the whole relationship" with Beijing.
On Friday, the Global Times, a state-run tabloid, said China was
ready to target U.S. companies such as Apple Inc. and Boeing Co. in
retaliation for U.S. moves to curb Huawei Technologies Co.
Business has in many ways remained largely insulated from the
political fireworks. Eager to attract foreign investors, China
continued courting U.S. companies during the pandemic. Early this
year, China introduced a foreign-investment law setting out
protections for brands and intellectual property, and promising
greater regulatory transparency.
Aside from a few flare-ups, most notably with the National
Basketball Association, there has been little lasting consumer
backlash against American products and brands.
"China's government welcomes companies that align with their
strategy and support the industries of the future," said Ker Gibbs,
president of the American Chamber of Commerce in Shanghai. Some
foreign business executives in China privately admit they fear that
could change if the U.S.-China relationship continues to unravel.
But in most cases, U.S. companies remain committed to China, Mr.
On Monday, Zhong Shan, China's commerce minister, told reporters
he wasn't worried about foreign companies leaving. "Smart companies
won't give up the huge China market," he said.
U.S. foreign direct investment in China has been stable for the
past decade, averaging $14 billion a year, equivalent to between
10% and 12% of China's total inward FDI, according to official
Some slowdown in investments is likely as companies grow more
bearish on China, according to Rhodium Group. In an April survey of
U.S. companies by the American Chamber of Commerce in China, 40%
said the uncertainty resulting from the Covid-19 pandemic would
decrease their planned investments here, while 36% said they would
stick to investment plans.
Yet the lure of China and its unrivaled pool of 1.4 billion
consumers is undimmed for some.
Tim Hortons, a coffee chain that, like Popeyes, is owned by
Canada's Restaurant Brands International Inc., said last Tuesday it
would open 1,500 coffee shops in China, up from just a few dozen
today. "China is our fastest-growing market," said Sami Siddiqui,
president of RBI Asia-Pacific, and "will become even more relevant"
in the future.
Retailers see similar opportunities to tap into the Chinese
middle class's appetite for new experiences and affordable quality.
Walmart said last month that its plans to more than double its
footprint in China, by opening around 500 new stores over the next
five to seven years, remain unchanged since their announcement in
2019. Costco Wholesale Corp. is preparing to open at least two new
China stores, having opened its first in Shanghai last year to a
Meanwhile, Tesla is rapidly expanding its Shanghai
factory--which started building the Model 3 sedan in December--as
it prepares for local production of the Model Y compact crossover
vehicle. A May 7 drone video of the factory site posted on YouTube
showed several new structures under way at the site of the $2
billion plant. The company didn't respond to questions.
In a sign of continuing Chinese government support for Tesla,
the auto maker recently secured a $563 million loan from the
state-run Industrial and Commercial Bank of China, according to a
May 7 regulatory filing, to fund the expansion. The company had
borrowed $492 million from Chinese banks last year.
Chemical producers have been moving to take advantage of a
recent rule change allowing foreigners to wholly own chemical
plants in China for the first time. Exxon held a ceremony with
government officials in the southern city of Huizhou last month to
mark progress in talks to build a chemical plant there that the
Chinese have said is valued at $10 billion--though a company
spokesman said details had yet to be completed and that the timing
of some expansion plans are being adjusted due to market
Though the pandemic has severely hit demand for leisure and
travel in China, a spokesperson for Universal Parks & Resorts
said the company is sticking with plans to open a $6.5 billion
theme park in Beijing next year.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
May 19, 2020 05:44 ET (09:44 GMT)
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