For US fast food chains China too large to pass up

WASHINGTON

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 last 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 $220 million in a manufacturing and distribution facility in eastern China, its biggest project outside the U.S.

This is surely not what Chinese President Xi Jinping had in mind as he made the case to American 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 modernizing its economy.

“As you try to interpret the signals from McDonald’s and Starbucks" and other chains, says Phil Levy, chief economist at Flexport, “note what the industries are: These are not high-tech burgers.’’

And while some U.S. companies are increasing investments in the world’s second-largest economy, overall foreign investment began falling this year.

In the July-September quarter, net foreign direct investment in China sank to a deficit of $11.8 billion, the first quarterly deficit since Beijing began publishing the data in 1998.

As tensions simmer between China and its Western trading partners, many multinational companies are shifting investments to other places, such as Southeast Asia or India, or repatriating their earnings.

That has sapped China of a key engine when its economy has yet to fully recover from the disruptions of the pandemic and a property industry crisis that has been a drag on growth.

A survey released in September by the U.S.-China Business Council suggested that the uncertainty has taken a toll: 43 percent of its members said China’s business environment had deteriorated in the past year, and 83 percent said they were less optimistic about China than they had been three years ago.

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.

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 program are in China.