In the movie "The Legend of 1900," 1900 had been living on the Virginia, a four-stack ocean liner that regularly sailed from Europe to New York, since birth and had never left the ship. Whenever people sitting on the deck saw the gradually clear Statue of Liberty in the morning fog, cheers of "America!" filled with eager longing would erupt.
In the hearts of the old world's gold seekers, America was once a continent full of hope. Chinese companies that once went global to America also firmly believed in its wealth and openness. But now, the game has changed.
Since March, SHEIN has been fiercely accused by the Shut Down SHEIN, a civilian alliance of unknown origin, which even called on the US government to take action to shut down SHEIN. TikTok has been continuously targeted by the government in the US, with members of Congress aggressively interrogating its CEO in a hearing and Montana enacting a law to ban it statewide. Further away, the stories of Huawei (华为) and ZTE's (中兴) failures in North America need not be elaborated further.
All signs indicate that, in the current period of adjustment in US-China relations, the choice of Chinese companies going global is quietly undergoing changes.
Capital Cooperation Driven by Interests
Trade between the US and China has remained at a high level for many years. According to statistics from the US Census Bureau, from 2015 to 2020, China has been the largest trading partner of the US (excluding 2019), accounting for 14.9% of the total trade volume. At the micro level, the US is still the single market with the highest average consumer income in the world, attracting Chinese companies from all industries to compete for market share.
Representative Chinese companies that have gone to the US and have significant business shares there include traditional home appliances and consumer goods companies like Hisense (海信) and KUKA Home (顾家家居), as well as emerging consumer companies like Anker Innovations (安克创新), DJI (大疆), Bluetti (德兰明海), and Miniso (名创优品).
According to Statista, in 2022, Hisense TVs had a market share of 11.3% in the US, and the number of TVs in use reached 4%, second only to brands like Samsung, LG, and Sony. DJI's drones had a market share of nearly 80% in the US as early as 2020, including over 70% of the personal drone market and 90% of the commercial drone market. In addition, as a leader in consumer electronics going global, Anker Innovations' North American revenue accounts for over 50%, and its portable energy storage devices are popular in the US where outdoor sports are prevalent. For example, Anker Powerhouse 757, the flagship product with a power of over 1500W, became the top-selling product in its category on Amazon on the first day of its launch.
Beneath the surface, the larger iceberg is capital. Behind China's VC/PE in the era of the Internet and mobile Internet, one can almost always see the shadow of US dollars from Long China. Established institutions such as Hillhouse Capital (高瓴资本), Sequoia Capital, Matrix Partners, and IDG have all received support from multiple US university funds and pension funds over the past few years, and these well-known names have witnessed the dramatic changes in China's new economy wave over the past two decades.
The US capital market has also continuously attracted Chinese companies, represented by the Internet, to go public overseas with its loose regulations and global hot money. According to statistics from the US-China Economic and Security Review Commission, as of January 2023, a total of 252 Chinese companies have been listed on the US securities market, with a total market value of USD 10.3 trillion.
The Visible Hand
According to data from the IMF and Statista, as the world's largest foreign direct investment destination, the US attracted a total of USD 4.9 trillion in foreign investment in 2021, with China contributing USD 38 billion, ranking only 17th; in terms of trade data, Canada and Mexico replaced China as the US's largest trading partners in 2021.
With the debate over "decoupling" between China and the US becoming more intense, capital, as a representative market indicator, is one of the most sensitive species.
Under geopolitical, trade war, and US government pressure on Chinese companies, the pace of US dollar LP withdrawals from China accelerated significantly in 2022, and US university funds, state pensions, and investment committees are more or less considering reducing and suspending plans to increase investment in China. According to data from research firm Prepin, China's US dollar-denominated funds raised only USD 1.4 billion in the first quarter of 2023, the lowest level since the same period in 2018.
Chinese concept stocks have felt the chill more acutely. The audit draft incident in 2022 dealt a blow to internet companies keen on financing in the US, and although the possibility of large-scale delisting has been reduced through cooperation between Chinese and US official institutions, the discussions on dual listings, spin-offs, and exit channels in primary markets since then indicate that everyone is preparing for the eventual arrival of that day.
Looking back at the history of Chinese companies being sanctioned by the US government, the past targets were mainly concentrated in critical areas such as semiconductors, communications, photovoltaics, and security, such as Huawei, ZTE, JinkoSolar (晶科能源), and Hikvision (海康威视). In recent years, sanctions based on "data security" have gradually infiltrated the internet and consumer goods sectors, and the experiences of SHEIN and TikTok are not isolated incidents. This also suggests that once the size of a going-global company becomes large, local companies and governments that lose market share are happy to form a "siege mentality."
Chinese Companies Need to Think About New Paths
Faced with sanctions and regulatory sticks, Chinese companies with important businesses in the US may need to prepare for the "worst-case scenario" early on. Many large companies choose to build operation centers and supply chains overseas, on the one hand, to embrace the global value chain, and on the other hand, to find a suitable "middle identity" for themselves.
SHEIN moved its headquarters to Singapore early on and recently announced a USD 150 million investment in building a supply chain in Brazil; KUKA Home Furnishings expanded in North America when the growth rate in the domestic market slowed down, and laid out its own base project in Mexico; CATL (宁德时代), whose net profit in 2022 increased fivefold, is also closely preparing for the summer construction of the battery factory in Hungary.
Looking towards the endgame, exploring the growth potential of emerging markets is a more long-term path. Looking back at the initial stage of globalization for many multinational companies, it was also a time when they benefited from emerging market economies and industrial development, and the rise of the middle class. For example, Starbucks' first foray overseas was in 1996 when it opened stores in Singapore and Japan, and soon after it quickly entered China.
China's central state-owned enterprises have always been the main force in participating in the construction of developing countries. In recent years, the rise of cross-border e-commerce has gradually led to "going global" becoming a well-known practice in various industries. In the future, more Chinese companies will turn their attention to ASEAN, Central Asia, and even distant regions such as the Middle East, Latin America, and Africa. However, with globalization being given a new definition, "going out to make a quick buck" is certainly not the only answer. Finding a community of shared interests, participating in local industry and social development, and becoming "people-to-people diplomats" are also responsibilities that commercial enterprises need to undertake.
The road to globalization is bound to be bumpy. Chinese companies going global need to understand both business and politics, and they have a lot of homework to do.
At this critical stage, the ESG2023 "the US Sub-Forum" will be held in Shenzhen on June 2, 2023. EqualOcean will invite the representatives of academic institutions and investment institutions, as well as company leaders, from the International Studies Institute of Fudan University, Sun Yat-sen University, Jinan University School of International Relations, Gaorong Capital, Vision Plus Capital, FreeS Fund, ZWC Partners, Source Code Capital, Niu Technologies, TikTok, SHEIN, NEIWAI, miHoYo, Tuya, MINISO, Dreame, Ecovacs, WYBOTICS, Lifen, and UniUni.EqualOcean analysts will also release the US Report 2023 at the US Sub-Forum, summarizing business opportunities and best practices for expanding into the US market in the new stage. Click the link to apply and scan the QR code below to learn more about ESG2023.