HELSINKI/BEIJING Suomalaispankki asked the management of large companies whether the rise of China strengthens the company’s industry. 57 percent of the respondents answered no – and almost 36 percent estimate that the increase is a direct threat.
OP has conducted a China survey for companies once a year since 2011. The most recent survey was answered by 140 managers and members of the management team of large companies.
In the graphic below, you can see how companies’ responses differed in 2022 and 2023.
OP’s strategist who did the China survey Jussi Hyödyn according to companies’ pessimism has grown especially in the last couple of years.
So the numbers did not come as a surprise to him – despite the fact that the threat picture clearly darkened over the past year.
In total, just under three hundred Finnish companies have operations in China. They now have two common concerns.
– The Communist Party has tightened its grip on society as a whole, including the economy. Another concern is that China’s geopolitics has become more aggressive. Companies see it as a bigger risk than before, says Hyöty.
China is Finland’s 5th largest export country and 3rd largest import country
The trade balance is in deficit: 2022 Finland’s goods exports to China were 4040 million and imports 8740 million euros.
The most important export products are pulp, substances and production supplies for the chemical and other industries, consumer goods and foodstuffs.
The most important imported products are industrial production and investment supplies as well as transport equipment.
Taiwan’s threat increased
An example of geopolitics is the attitude of the Chinese leadership towards Taiwan. President and General Secretary of the Communist Party Xi Jinping said in his New Year’s speech that he was certain that Taiwan unites with mainland China.
– The talks are tough and they don’t seem to change, says Hyöty.
Taiwan will hold presidential elections on January 13. China has disrupted campaigning by signaling that it is the pre-favorite DPP party William Lain the choice would tighten the relationship between China and Taiwan and the military tension even more.
Lai supports Taiwan’s independence and hopes for closer relations with the United States.
Taiwan is exceptionally important to the whole world because of the island’s semiconductor industry. An estimated half of all microelectronics in the world and 90 percent of the most advanced microchips are manufactured there.
A conflict between China and Taiwan would be immediately felt in the global economy, including in Finland.
Russia, North Korea, trade war
According to OP strategist Hyödy, other geopolitical risks related to China concern its close partnerships with Russia, Iran and North Korea.
The trade war between China and the United States has been going on for almost six years now, and there is no end in sight.
China’s attractiveness has also been reduced by the fading of the country’s wild economic growth. International banking firms and financial institutions predicted 2023 growth of 5.4 percent at most, which did not excite those accustomed to much higher numbers foreign investors.
The ever-increasing control of companies in China has its own story. The internal security law that entered into force last summer worries foreign companies operating in the country.
The law increases the powers of the communist regime to prevent what it considers to be extortion and espionage in China. Foreign companies fear that it will lead to arbitrariness and breaches of information security.
I am interested in the green transition
More and more Finnish companies operating in China follow the so-called China + 1 strategy, OP’s Hyöty says. It means that the company remains in the country, but is ready to move its production elsewhere if necessary.
The companies are considering leaving carefully, because despite the difficulties, there are still great opportunities in the market of 1.4 billion people. Among them, Hyöty highlights climate protection and the production of various metals, which also require foreign technology.
– Xi said in 2020 that China will make a green transition. Since then, China’s global market share in the green transition, i.e. in wind and solar energy and batteries, has risen to around 70 percent. Regarding metals, China’s market share in the world is currently up to 85 percent, he lists.
India is rising
As China fades away, Finnish companies are clearly more interested in India, which became the world’s most populous country last summer.
38.6 percent of the respondents considered India’s rise as an opportunity for their company.
If India’s economy grows as predicted, a couple of hundred million Indians will enter the middle class within this decade. The growth resembles China’s development in the first decade of the 21st century.
– The Indian market is not yet as attractive for companies as China was then, but it is already quite attractive, Hyöty estimates.