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Looking ahead to 2013

APCOs International Advisory Council and Global Political Strategies teams convened their monthly call last week. The conversation centered on Chinas slowing economy, the challenge for Chinese investments in the United States and potential business opportunities in India all in light of historic electricity blackouts in India, devastating droughts affecting global food prices and the controversial and close presidential campaign in the United States.

en Jarrett, former U.S. consul general in Shanghai and chairman of APCOs Greater China region, explained that China is experiencing a slowdown but will still see estimated annual growth of between 7.5 and 8 percent. The government has sought a slower rate of growth and is using the current global slowdown as another lever to manage rising commercial property and real estate values and restructure the Chinese economy so that it relies more on domestic consumption. But the boom period for China is over while we were once used to seeing China grow in the double-digits, the government is working to ensure a more sustainable rate of growth in the future. There is reason for concern, however, as the engineered slowdown has been faster than expected. Government infrastructure spending has not increased, and for both Chinese and foreign companies, growth is tougher and theres certainly more competition. >>

August 2012

For consumers, however, confidence remains high and theres a strong sense of optimism in the marketplace. Retail sales are still increasing at 10 percent per year, and export growth is up 5 percent compared to last year. The best opportunities for new investment in China are now in the central and western parts of the country. Industrial, chemical, and luxury companies are still growing significantly. Samsung recently announced a $7 billion investment in central China. Ford is expanding its Chongqing factory and investing another $500 million. The Marriott chain is doubling the number of hotels in China in the next 3-4 years, and McDonalds is going to open another 250 stores this year alone. There is tremendous interest now by Chinese companies to invest overseas. Much of the first wave of the Chinese outbound investment has gone to Central Asia, Africa and Australia, as China has aggressively sought natural resources, oil and energy commodities. They are carefully considering mergers and acquisitions, and evaluating the market in the United States. Don Bonker, former member of the U.S. House of Representatives and executive director of APCOs government relations practice, said the Obama administration is sending mixed messages when it comes to Chinese investments in the United States. On the one hand, it wants certain, targeted investments, especially in infrastructure and energy projects, and it has made this a higher priority in U.S.-China relations. On the other hand, U.S. policies and politics often restrict and discourage such investments. Both parties on Capitol Hill share the concern with Chinas neighbors over its controversial influence in the South China Sea and expanding global reach. Chinese businesses require a sensitive and savvy communications program and outreach on Capitol Hill designed to better educate the lawmakers and others about their motives. The Chinese slowdown has been barely noticed in the media in India, given Indias own economic problems and its recent focus on their own presidential election, according to Lalit Mansingh, former Indian foreign secretary. But the slowdown in China and Indias own indigenous challenges will have three potential impacts moving forward: 1. If China is less active in investments and trade abroad, Indian companies will readily seize the opportunity and aggressively seek opportunities vacated by Chinese companies. Its unclear precisely how successful they can be in this endeavor. 2. The Indian rupee has weakened, which means that exports are going to be competitive. Indian companies will look to gain a larger share of the Chinese export market.

3. In geopolitical terms, because China has been investing in Afghanistan, it is expected that the Chinese will emerge as significant stakeholders as foreign troops leave the country. And since the United States is restricting and suspending aid to Pakistan, the Pakistanis expect the Chinese to make up the difference. India is closely monitoring these developments. Former U.S. Ambassador to India Tim Roemer said that India is challenged by their decreasing growth, slowing from 9 percent to approximately 6 percent, which creates obstacles for global companies. Also, given the recent Indian presidential election and with national elections two years away, India is politically gridlocked and not making investments in infrastructure (now highlighted by historic blackouts) and retail. On the bright side, however, India is one of the few countries in the world investing more in defense, so significant opportunities exist for the global defense sector. Meanwhile in the United States, the economy continues to be the dominant issue; the unemployment rate and slow recovery will certainly affect the upcoming U.S. presidential election. Gov. Bill Richardson outlined how the Federal Reserve is considering whether to expand the stimulus campaign in an effort to improve the pace of economic growth. Since small business drives the economy, the health and growth of small business is vital to economic recovery.

In sum, key takeaways from the meeting included:

Chinas economy is slowing but remains in an enviable position. Double-digit growth is still being achieved in the interior of China. There are many challenges for Chinese companies who want to invest in the United States. India does not want to be cast in the same light as China with respect to their investment in the United States, yet they are reluctant to invest the resources needed to achieve results. Indian business can take advantage of slower growth in China, yet it must confront several challenges to be successful. There are specific opportunities targeted for defense, homeland security and infrastructure (energy) sectors in India. Both India and China recorded slower manufacturing growth in the past month. Asia is feeling worldwide downward pressures from Europe and the United States. The more complex and nuanced the political and business environment, the more valuable APCOs insight, strategy and effectiveness.
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