WASHINGTON (AP) – There’s been no shortage of tough news for China’s economy as some of the world’s biggest brands consider or take action to shift manufacturing to friendlier shores at a time of unease about security controls, protectionism and wobbly relations between Beijing and Washington.
Count Adidas, Apple and Samsung among those looking elsewhere.
But as a tumultuous 2023 for the Chinese economy comes to a close, there has been at least one bright spot for Beijing when it comes to foreign investment: American fast-food chains have decided a market of 1.4 billion people is simply too delicious to pass up.
KFC China’s parent company opened its 10,000th restaurant in China this month and aims to have stores within reach of half of China’s population by 2026. McDonald’s is planning to open 3,500 new stores in China over the next four years. And Starbucks invested USD220 million in a manufacturing and distribution facility in eastern China, its biggest project outside the United States (US).
This is surely not what Chinese President Xi Jinping had in mind as he made the case to American chief executive officers (CEOs) about the upside of China’s “super-large market” last month while he was in San Francisco for a summit of world leaders. The investments in fast food and other consumer goods, while Washington is curbing exports of computer chips and other advanced technology, don’t fit into China’s own blueprint for modernising its economy.
“As you try to interpret the signals from McDonald’s and Starbucks” and other chains, said chief economist at the supply chain management firm Flexport Phil Levy, “note what the industries are: These are not high-tech burgers”.
Commerce Ministry spokesperson Shu Jueting said recently, “The US side has repeatedly politicised economic, trade and technology issues and overstretched the concept of security, abused export control measures, and restricted trade and investment in China by its own enterprises, which is forcing enterprises 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 companies in China, suggested that the uncertainty has taken a toll: 43 per cent of its members said China’s business environment had deteriorated in the past year, and 83 per cent said they were less optimistic about China than they had been three years ago.
Twenty-one per cent said they were investing fewer resources in China, versus just 10 per cent who were investing more.
Surveys of European and Japanese companies have shown similar results.
Still, bullishness for China as other industries try to de-risk and detangle from Beijing may be a profit-increasing strategy for the fast-food industry.
“We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest-growing market’s long-term potential,” McDonald’s CEO Chris Kempczinski said as the Chicago-based company announced in November it was increasing its minority 20 per cent ownership of its McDonald’s licensed stores in China, Macau and Hong Kong to 48 per cent.
Executive director of the non-profit Reshoring Institute Rosemary Coates noted that decisions to expand or retrench are relatively easy for a company like McDonald’s or its fast-food rivals.
Franchises “can be opened or closed”, Coates said. “It’s not like you’re investing in an auto plant or some kind of machine shop.”
China’s vast market is vital for many foreign companies: At their annual investors day gathering this month, McDonald’s executives noted that 70 million of the 150 million customers active in its customer loyalty programme are in China.
KFC China said growth in its new outlets has averaged more than 22 per cent over the last five years, and it plans to open 1,200 additional stores in the next three years. The chain Popeyes Louisiana Kitchen relaunched its brand in China in August with a flagship restaurant in Shanghai and plans to open 1,700 stores over the next 10 years.
