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Concerns about US investments in China are growing. Except for fast food

WASHINGTON (AP) — There’s no shortage of tough news for China’s economy as some of the world’s biggest brands consider or take steps to moving manufacturing to friendlier shores at a time of concern over security controls, protectionism and shaky relations between Beijing and Washington.

Count Adidas, Apple and Samsung among those looking elsewhere.

But as a tumultuous 2023 for China’s economy draws to a close, there is at least one bright spot for Beijing when it comes to foreign investment: American fast-food chains have decided that a 1.4 billion market people was just too delicious to ignore. up.

KFC China’s parent company opened its 10,000th restaurant in China last month and aims to have stores within reach of half of China’s population by 2026. McDonald’s plans to open 3,500 new stores in China in over the next four years. And Starbucks invested $220 million in a manufacturing and distribution plant in eastern China, its largest project outside the United States.

That’s surely not what Chinese President Xi Jinping had in mind when he pitched the benefits of China’s “very large market” to U.S. CEOs last month, while in San Francisco for a summit of world leaders. Investments in fast food and other consumer goods, while Washington restricts exports of computer chips and other cutting-edge technologies, do not fit with the plan to modernize China’s economy.

“When you’re trying to interpret the signals coming from McDonald’s and Starbucks” and other chains, says Phil Levy, chief economist at supply chain management company Flexport, “note which industries: what are not high-tech hamburgers.”

And while some U.S. companies are increasing their investments in the world’s second-largest economy, overall foreign investment has started to decline this year. In the July-September quarter, net foreign direct investment in China fell to a deficit of $11.8 billionthe first quarterly deficit since Beijing began publishing such data in 1998.

As tensions rise between China and its Western trading partners, many multinational companies are shifting investments to other countries, such as Southeast Asia or India, or repatriating profits. That deprived China of a key driver as its economy has yet to fully recover from the disruptions of the pandemic and a crisis in the real estate sector that has dampened growth.

Beijing attributes part of the responsibility to US government policy.

Ministry of Commerce spokesperson Shu Jueting said recently: “The US side has repeatedly politicized economic, trade and technological issues and overstepped the concept of security, abused export control measures and restricted the trade and investment in China by its own companies, forcing companies to give up opportunities in the Chinese market and opportunities for win-win cooperation.

A survey released in September by the US-China Business Council, which represents American businesses in China, suggests that the uncertainty has taken a toll: 43 percent of its members said the business environment in China had worsened. deteriorated over the past year, and 83% said they were less optimistic about China than they were three years ago. Twenty-one percent say they are investing fewer resources in China, compared to just 10% who are investing more.

Surveys of European and Japanese companies have shown similar results.

Even though the Chinese market is huge, it is in difficulty. Unemployment among Chinese youth reached more than 20% in June, the last time the government released this data. Real estate prices are falling and the stock market has fallen almost 15% since the summer. This makes many Chinese nervous about spending.

Still, optimism toward China, as other industries try to reduce risks and break away from Beijing, could be a profit-increasing strategy for the fast food industry.

“We believe there is no better time to simplify our structure, given the enormous opportunity to capture increased demand and further benefit from the long-term potential of our fastest growing market” , McDonald’s CEO Chris Kempczinski said when the Chicago-based company was announced in November. it increased its 20% minority stake in its McDonald’s licensed stores in China, Macau and Hong Kong to 48%.

Hamburgers and lattes don’t stir up the kind of friction that high-tech industries experience in the complex U.S.-China relationship. These tensions have persisted under the presidency of Joe Biden, who took office pledging to do more to counter China’s growing military influence and threats to its neighbors, to improve the treatment of Uyghurs and others ethnic minorities and to suppress the theft of intellectual property. .

Relations hit a low point in February when Biden ordered a Chinese spy balloon that was crossing the continental United States to be shot down. Beijing, which claims Taiwan as its own territory, also protested a stopover in the United States by the island’s president, Tsai Ing-wen, earlier this year. China has responded to new U.S. controls on exports of advanced computer chips and the technology to make them. its own limits on exports vital raw materials like graphite, gallium and germanium, all metals used in the manufacture of semiconductors, solar panels, missiles and radars.

The relationship appears to be stabilizing somewhat as 2023 draws to a close, as highlighted by last month’s Biden and Xi meeting outside San Francisco. But since then, Biden’s top advisers have said there are no plans to change the strategy of tightening regulations and blocking U.S. high-tech investment in China, citing the need to safeguard national security.

Former President Donald Trump, the Republican Party’s 2024 front-runner, and Biden worry about depending on China, a potential adversary, for supplies of critical materials used in many high-tech products. Both have sought to reduce America’s dependence on Chinese factories and encouraged companies to leave China for other countries – so-called “friendshoring.”

Still, Biden administration officials have said they do not want to see a complete decoupling of the world’s two largest economies.

“Reducing risks, yes. Decoupling, no,” Nicholas Burns, the US ambassador to China, said at a recent event in Washington. “We want to maintain a major trade and investment relationship with China, but not…in an area that could help it overtake us in the next ten years in military technology.”

Rosemary Coates, executive director of the Reshoring Institute, a nonprofit, noted that decisions to expand or downsize are relatively easy for a company like McDonald’s or its fast-food competitors.

Franchises “can be opened or closed,” Coates said. “It’s not like you’re investing in a car factory or some kind of machine shop.”

China’s vast market is vital for many foreign companies: At its annual investor day this month, McDonald’s executives noted that 70 million of the 150 million active customers in its loyalty program are in China.

KFC China says its new outlet growth has averaged more than 22% over the past five years. The Popeyes Louisiana Kitchen chain relaunched its brand in China in August with a flagship restaurant in Shanghai and plans to open 1,700 stores in the next 10 years.

But for all the promise of China’s huge market, American companies have other reasons to think twice about expanding into China.

In July, the United States recommended Americans reconsider their trips to China due to arbitrary application of laws, exit bans and the risk of unjustified detentions. Commerce Secretary Gina Raimondo warned Chinese leaders that U.S. companies could stop investing in their country if they do not respond to complaints about deteriorating conditions due to raids on companies, unexplained fines and behavior unpredictable by the authorities.

While insisting that China wants to attract foreign investment, Beijing has given no indication that it might change trade, market access and other policies that irritate Washington and its other trading partners.

“Where do you draw the line?” asked Levy, a former White House economic adviser in the George W. Bush administration. “Someone might say: for the sourcing of sensitive computer chips, it has to be done in a place that I really trust. …The other extreme is: we’re okay with selling them lattes and burgers. But where do you draw the line for intermediate items, for example car parts? What about ball bearings?


Kurtenbach reported from Bangkok. AP writer Ken Moritsugu contributed to this report from Beijing.

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