MNC CEOs in China Hopeful Economy May Be Turning a Corner Soon, Despite Current Challenges

Insights for What’s Ahead

• Although still in negative territory, the latest Measure of CEO Confidence™ for China shows a marked improvement in the sentiment of CEOs of major Western MNCs operating in China, moving from 34 in 2022 H1 to 47 in H2. The Measure ranges from 0 to 100, with a reading below 50 points reflecting more negative than positive responses.
• Confidence among CEOs based in Europe and US was significantly lower than those based in China, a reversal from H1. CEO Confidence in Europe plunged to 24 in H2 2022, an all-time low. In the US, confidence went down to 32, a level not seen since the 2007-2009 recession.
• Sentiment among MNC CEOs in China improved despite persistent domestic economic headwinds. Sentiment improvements were driven by increased expectations that future conditions for the economy and companies’ own industries will at least hold at current levels. Sentiment regarding current conditions remained pessimistic, but nevertheless showed a markedly higher share of positive views.
• Short-term expectations regarding capital investment remained unchanged, slightly tilted to the negative, with most remaining in a “holding pattern”. The outlook improved slightly for employment, with the majority expecting to keep headcount stable. CEOs’ sales outlook for China improved significantly compared with six months ago, with 53 percent of CEOs expecting China sales to improve over the coming six months. Looking ahead 12 months, most CEOs (88 percent) see either no change or gains in China share vis-à-vis global revenue.
• The top three risks affecting business operations in China identified by the CEO group were China’s COVID restrictions (27 percent), China’s economic slowdown (23 percent), and geopolitical tensions (19 percent).
• The vast majority of CEOs (82 percent) said that while China-HQ relations are generally stable and aligned, risk assessments regarding economic, policy, and geopolitical risks are not. Where there is misalignment in risk assessments, the majority of CEOs (56 percent) said the HQ view is more pessimistic than that of the local China leadership team.
• Supply chain shifts are underway, and seem to be gaining momentum. 31 percent of CEOs said their companies have reduced or are planning to reduce dependencies on Chinese suppliers, up significantly from 17 percent in H1. Meanwhile, 19 percent said that reshoring to the US and/or Europe is underway, while 28 percent said they have or are planning to shift parts or entire supply chains to South-East Asia. Finally, 16 percent of CEOs said they are planning to reduce supply chain exposure in Taiwan, up substantially from only 3 percent in H1.