With the Chinese economy slowing down and its population dividend diminishing, foreign capital has been exiting the market at an accelerated pace, leading to concerns over a possible large-scale capital flight which may impact domestic banking capital and forex reserves, according to Duowei News, a media outlet run by overseas Chinese.
A recent case in point is the decision of Citizen China, which produces Japanese Citizen watches, to fold its production base in Guangzhou, on the heels of Microsoft which announced on Dec. 17 its decision to close the mobile-phone factories of Nokia, under its auspices, in Beijing and Dongguan by the Spring Festival moving facilities to Nokia’s factory in Hanoi.
A number of other foreign enterprises are scheduled to join the exodus this year, including Panasonic, Sharp, Daikin, and TDK, all Japanese firms, which plan to transfer some capacity from China back to Japan or to other countries. Others, such as Uniqlo, Nike, Foxconn, Funai, Clarion, and Samsung, are setting up new factories in Southeast Asia and India, while scaling down their Chinese operations.
The foreign firms are leaving as factors which attracted them to China in the first place are quickly disappearing, including cheap resources, land, and labor, as domestic production costs have surged in the wake of decades of rapid economic development.
In addition, labor quality has been deteriorating, as many employers complain of lack of professional skills and working ethics among young Chinese laborers born after the 1980s or 1990s, a far cry from the industrious and obedient labor force of earlier times.
The exodus of foreign enterprises may sour the domestic investment climate, triggering a massive capital flight. According to the People’s Bank of China, capital outflow topped US$92.1 billion in the second half of 2014, with Citibank estimating the amount at US$250-270 billion in the fourth quarter alone.
The capital outflow has strained the credit supply at domestic banks, prompting the People’s Bank of China to cut interest rates and deposit reserve requirements, in a bid to inject liquidity into the banking system.
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