Missed Opportunities and Initial Impressions

During my college years, I regretted not being able to join a six-week trip to China offered by the business school due to scheduling conflicts. China was just starting to gain recognition as the world’s next big economic powerhouse back in 2007. Finally, in 2012, I had the chance to visit Beijing as part of a work assignment with . The sheer size of the city stood out to me, dwarfing even the largest city blocks in Washington, D.C. The lack of birds and squirrels, along with the impact of air pollution, gave the city a somewhat somber atmosphere.

The Unanticipated Setbacks

I had expected that by 2023, we would be marveling at China’s remarkable development and discussing how it had overcome its challenges. However, the reality is quite different. China’s post-Covid recovery has been disappointing, revealing deeper economic issues. This has led many U.S. investors and businesses to consider Chinese exposure as a liability rather than a source of returns, which it had been for the past 15 years.

One alarming development in this regard is the recent ban on Chinese officials using Apple’s iPhones and other foreign devices at work. This news caused a 4% drop in Apple’s shares, and the ban could potentially expand to state-owned enterprises and government-controlled agencies, affecting a significant portion of the workforce. Companies heavily exposed to China, such as Starbucks, have seen a decline in their stock prices.

High Stakes for Tech and Semiconductor Industries

The tech sector, particularly the semiconductor industry, faces significant risks due to its substantial sales exposure in China. Semiconductors generate over 30% of their sales revenue from China, and companies like Micron have experienced a decline in their stock prices despite previous growth. The ban on Micron’s products for vital infrastructure projects further exacerbates the situation.

Vulnerabilities in Other Industries

Automotive companies, including Tesla, also face challenges as their high exposure to China drives the industry’s average sales to China above 20%. Luxury retail brands, pharmaceutical companies, and the energy sector are among the many other industries that could suffer if their reliance on China turns into a disadvantage.

The Dilemma for Businesses

Companies now face the question of whether to increase their existing exposure to China or reconsider their investments in the country. However, caution is advised, as experts like Derek Scissors from China Beige Book and AEI warn that China’s economy has been on a downward trajectory for over a decade. Stagnant policies, rising debt, and demographic challenges make it unlikely that government stimulus can reverse the decline.

Uncertainty and the Future of China

Adding to the uncertainty is the potential risk of a Chinese invasion of Taiwan, as President Xi Jinping has instructed the military to be prepared for such an event by 2027. With all these factors at play, multinational companies may hesitate to make long-term investments in China. It is remarkable to witness the emergence, rise, and potential decline of China within just a span of 16 years.