Why American companies are planning to invest more in China

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Why American companies are planning to invest more in China

A broad crackdown on private enterprise, regulatory tightening and uneasy U.S.-China relations have not discourage American companies from doing business in the world's second largest economy.

In fact, Eurasia Group President Ian Bremmer says executives plan to double down on their investments.

I talked to CEOs of Western companies literally every day, and I will tell you that the majority of them are planning to do more business in China over the next 10 years, not less, Bremmer told Yahoo Finance Live. The reason for that is simple. It's because of the fact that China is still on track to be the world's largest economy by the year 2030. The corporations want to be where their markets are going to be. The Chinese market's size has made it the most valuable asset for U.S. multinationals operating in the country. In the early 2030s, the International Monetary Fund estimates that China will become the world's largest economy.

The growth prospects for American companies have been clouded by geopolitical risks and a shifting domestic environment. As China's President Xi Jinping tries to secure a third five-year term and cement his legacy, he has reshaped the priorities of the economy under the aim of common prosperity by going after some of China's biggest companies, including Alibaba and Tencent.

That has coincided with a slowing of growth in the economy. China's GDP expanded at 4.9% in the third quarter, dragged down in part by supply chain constraints, global energy crunch, COVID 19 uncertainty and a debt-ridden property mark.

China is more economically unaffluent than the United States. China is a socialist economy. Bremmer said that shouldn't be happening and Xi Jinping is trying very hard to address that. If that means breaking eggs, in terms of local Chinese corporations and what they aren't allowed, the kind of wealth they can amass the kind of business practices they can have for technology companies and consumer internet for video game companies. This is creating more concern about Chinese growth and the sustainability of that growth. U.S. policy against China has added to the jitters for executives. Last month, President Biden signed a bill banning imports from the Xinjiang region, where Western countries accused the Chinese of carrying out genocide against Uyghur Muslim minorities. Intel and Walmart's WMT Sam s Club faced backlash domestically after Chinese users took to social media platforms calling out the companies for complying with the new import ban. A Walmart representative later denied those allegations, saying customers simply couldn't find the products because of a misunderstanding of the app's search function.

In a recent survey by the U.S. China Business Council USBC 45% of U.S. companies said they felt pressure to make statements about political issues, with pressure coming from both the U.S. and Chinese governments, as well as consumers. One-third of those who responded said nationalism has played a role in consumer decisions, with heightened U.S.-China tensions.

As a result of an unpredictable business environment, the Chinese investment in the U.S. is down significantly, while the US investment in China continues at a slower pace, according to Doug Barry, USBC senior director for communications and publications.

Barry said that his members plan to increase investments in China because they don't want to miss out if growth in markets slows. Bremmer said the White House policy is predicated on that understanding.

Bremmer said that the US foreign policy towards China is to avoid a crisis because our economies are enormously interdependent. Follow her on Twitter, AkikoFujita.

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