Foreign investors are losing interest in China due to difficulties with international transactions. Could the use of the WeChat service resolve this issue?

Many renowned companies actively relocated production to China, drawn by cheap labor, favorable taxation, and a business-friendly climate for manufacturing. China, the “Middle Kingdom,” became a global factory, producing everything from children’s toys to high-tech equipment. However, in recent years, German businesses have notably lost interest in China’s opportunities. Unofficial sources indicate a range of difficulties, directly or indirectly linked to money transfers. To find out the truth, one would need to ask the entrepreneurs who are rapidly leaving China’s jurisdiction, especially those whose transactions were blocked for various reasons. Will they turn to the new WeChat service, which currently enables seamless money transfers?

Truth and Speculation: The Percentages

A study conducted by the German Chamber of Commerce in China, in cooperation with KPMG, titled “Business Confidence Survey 2019/20”, confirmed that approximately 25% of German companies operating in China are preparing to relocate their production facilities to other countries, frustrated by frequent transaction blockages. Some companies have already moved, while others are “at the starting line.” Yet, neither the Chinese public nor the government seems particularly alarmed by this development. They suggest using the WeChat service, which reportedly facilitates smooth money transfers.

A Few Statistics and Bare Facts

The survey regarding intentions to leave China was conducted from late July to mid-September. Out of 2,300 respondents, 526 companies expressed a desire to relocate. Using the hashtag #time_to_leave, their decision was supported by the following arguments:

  • 71% mentioned rising labor costs. The ambitions of Chinese workers are rapidly nearing an average monthly salary of $1,000, which conflicts with investors’ interests.
  • 33% cited an unfavorable political climate.
  • 25% pointed to the ongoing trade wars between the U.S. and China. The sanctions imposed have affected international money transfer systems. While small-scale buyers may use WeChat for payments, serious businesses do not consider it a viable solution.
  • 22% highlighted increasing transaction issues. They do not see WeChat payments as an adequate resolution.

Note: Some respondents provided multiple reasons, which is why the total percentage exceeds 100%.

Alternatives to the “World’s Factory”

Among the companies leaving China, 52% chose Southeast Asian countries, 25% opted for India, and 19% moved to European nations. Only a small percentage returned to the United States, suggesting that President Trump’s claims that businesses leaving China would return to the U.S. have not materialized as expected.

On the subject of the U.S.-China trade war (including transaction problems caused by it), respondents expressed strong emotions. Entrepreneurs agree that the economic standoff between the two nations has cast a shadow over business development prospects. While the WeChat wallet can be used for money transfers, it doesn’t address the root of the problem. This has led to a slowdown in growth.

“Business expectations have catastrophically fallen to their lowest levels in the last five years. Only 27% of German companies surveyed consider achieving or exceeding their 2019 business goals feasible,” revealed the study.

Entrepreneurs also highlighted the negative impact of regulatory barriers in China. 66% of firms reported direct or indirect market access restrictions, transaction limitations, and other artificially created challenges. This violates the fundamental principles of a capitalist economy.

Conclusion

In summary, disruptions in complex supply chains, money transfer issues, and other factors are likely to push the global economy toward a downturn by early 2020. The reason is painfully simple: stock markets have already assessed the situation and drawn their conclusions.