What you need to know: It’s shaping up to be a tough year for China Inc. both at home, and abroad
The economic stress China currently experiences at home has repercussions for China Inc., the often-coordinated network of companies, financiers, and officials expanding China’s footprint abroad.
First, China’s supply chain woes are quickly becoming the world’s problem too. With ‘the world’s factory’ in disarray, any companies or individual consumers awaiting goods shipments from China are in for delays and shortages – the last thing many countries need at a time of rising inflation. Many of China Inc.’s projects within the Belt and Road (BRI) are likely to suffer delays and temporary setbacks too because of supply disruptions from the home market, and possibly even backtracking on projects overseas as aggressive stimulus is called for back home.
Second, China’s annual outbound foreign direct investment (FDI) flows were already struggling to recover throughout 2021, in sharp contrast to a massive resurgence in global FDI flows which rose 77 percent year-on-year. Instead, as MERICS and Rhodium reported in April, China’s outbound non-financial investment rose by a meagre 3 percent in 2021 to USD 114 billion (EUR 96 billion). The lack of a recovery was attributed to the zero-Covid strategy, which “hindered cross-border travel and deal-making activities.” The Omicron outbreaks mean China Inc. looks increasingly unlikely to get back into major investing abroad in 2022.
Third, Beijing’s continued intransigence on Russia’s invasion of Ukraine could harm perceptions of China Inc.’s global presence at least in some parts of the world. For now, Beijing seems capable of holding together the BRICS coalition as a platform for its global power projection. Shifting domestic politics in key BRI partner countries such as Brazil and Kenya in 2022 and with doubts about the role Beijing plays in the looming global food crisis, the outlook for China’s global expansion looks more uncertain.
Against this background, this edition of the Global China Inc. Tracker provides you with critical insights into China’s evolving ties with one of the BRICS countries, Brazil, and China’s radical food security strategy.
Jacob Mardell, freshly back from that very country, covers Brazil in this quarter’s Regional Spotlight. Sino-Brazilian ties have been a mixed bag under Bolsonaro’s leadership, balanced between his refusal to join the BRI on one side and China’s growing investments in Brazil as a supplier of soybeans, iron ore, and crude oil. The October election between Bolsonaro and his more China-friendly rival, Lula, will determine the future prospects for this member of the BRICS.
Aya Adachi and Jacob Gunter explore the role of this edition’s Key Player: COFCO – As China’s chief food processor and distributor, at home and abroad, COFCO has a key role in Beijing’s food security strategy. As the war in Ukraine threatens global food security, we look into China’s food production and trade, and what sort of international role it might play in a food supply or price crisis.
The war in Ukraine coupled with China’s “neutrality” and subsequent outreach to the Global South have reinforced the views of those in Brussels who contend the EU should approach trade agreements more loosely. EU trade agreements carry a series of requirements and building blocks designed to ensure the bloc uses its trade leverage to obtain progress in other areas. However, this can make negotiations long and difficult, or even impossible. With geopolitical competition intensifying and globalization threatened, some in Brussels think this as the right time for the EU to adopt a more flexible approach, starting with its requirements for India. Their reasoning is that competition in third countries is set to be a crucial element of greater geopolitical polarity. While Russia may currently be the EU’s main concern, competition with China is sure to engage much of the EU’s attention in third countries, especially in the Global South. Two options for flexibility are discussed here: flexibility in the agreements, or the possibility of joining other regional frameworks. The former is being discussed in Brussels, while the latter seems to be still relegated to scholar and expert discussions.