Mitsubishi Motors Calls Quits In China; Foreign Automakers Exiting China Market, While Investors Flee Chinese Stocks; China’s Continuing Economic Woes
From investing in China to exiting China, the recent spate of companies calling it quits in China is increasing, and another one to join the list is Mitsubishi Motors. The Japanese automaker recently announced its decision to cease vehicle production in China, reflecting a broader trend of foreign automakers retreating from the world's largest automobile market. Additionally, a growing number of international investors have been divesting from Chinese stocks at an unprecedented rate.
Mitsubishi Motors has made the decision to halt vehicle production in China, signalling a growing trend of foreign automakers retreating from the world’s largest automobile market.
Confirming recent speculation, the Japanese car manufacturer announced its intention to phase out local manufacturing and exit a long-standing joint venture in mainland China.
In an official statement, Mitsubishi Motors disclosed its plans to fundamentally revamp its strategy for the highly competitive Chinese market due to declining sales, largely attributed to the rapidly accelerating shift towards electric vehicles and evolving consumer preferences.
Over the past two to three years, the company has witnessed a decline in sales and attempted to recover by introducing a new model in December 2022; however, this effort fell short of expectations, leading to the suspension of production in March of the current year to manage inventory adjustments.
As part of its restructuring, Mitsubishi will transfer its ownership stake in the Chinese joint venture to its existing partner, Guangzhou Automobile Group Company (GAC), which will continue to utilize the production facility for electric vehicle production; after the transaction, GAC will become the sole owner of the joint venture established in 2012.
Mitsubishi anticipates incurring a loss of 24.3 billion yen (approximately $162.2 million) for the fiscal year ending in March 2024 due to these strategic changes; moreover, the company has not yet clarified whether it will continue to sell imported cars in China.
This development closely follows Stellantis, which oversees brands like Jeep and Chrysler, also scaling back its operations in China.
In recent days, Stellantis agreed to sell significant assets jointly held with its Chinese partner, Dongfeng Motor Group, marking another step in its withdrawal from the Chinese market; the automaker is now focused on selling imported vehicles in China through dealerships.
Exiting China But Investing Elsewhere
Mitsubishi, while it has exited China, simultaneously unveiled plans to increase its investments in other regions.
On the same day, the company announced its support for Ampere, an electric vehicle unit established by the French automaker Renault; Mitsubishi intends to invest up to €200 million ($212 million) to facilitate Ampere’s expansion into the European market.
International Investors Seeking Greener Pastures
International investors, too, are seeking greener pastures and are divesting from Chinese stocks at an unprecedented rate, despite Beijing’s efforts to stimulate economic growth through increased borrowing and spending.
The outflow of foreign funds from China’s A-share market, comprising yuan-denominated shares of mainland Chinese firms traded on the Shanghai and Shenzhen Stock Exchanges, reached a historic high of $22.1 billion between August 7 and October 19 through the Stock Connect trading link established in 2014.
The worsening economic conditions in China and the perceived lack of effective responses from the authorities are the primary factors driving this exodus.
While the Chinese government has introduced various measures to boost the economy, they have failed to instill confidence in investors. Moreover, concerns have grown due to China’s increasingly opaque and confrontational behavior towards foreign businesses, including the imposition of anti-espionage laws and police raids on international companies.
Rising tensions between China and the United States have also contributed to this trend, with U.S. authorities pressuring global asset managers and venture capital firms to limit their investments in China, with President Joe Biden signing an executive order in August to restrict US investments in advanced technology industries in the country.
In recent months, significant amounts of capital have been leaving China, with $42 billion exiting China’s current and capital accounts in one month, according to a Goldman Sachs report. This pattern has accelerated, with around $75 billion leaving the country in September, marking the largest net outflow since 2016.
The Chinese government has made efforts to support its slumping stock market and boost economic growth by implementing various measures, including the issuance of new bonds and buying exchange-traded funds; however, these interventions have not effectively restored investor confidence.
Homegrown Companies Suffer
The lack of faith in China’s economic future is not limited to foreign investors; even Chinese investors are expressing concerns.
Dingtai Capital, a Shenzhen-based private equity investment fund, asked its investors to redeem their shares, citing “unprecedented uncertainty” about the economy; this message went viral and raised questions about the stability of the Chinese economy.
The Last Bit,
The decisions by Mitsubishi Motors to halt vehicle production in China and the increasing outflow of funds from Chinese stocks have heightened the complex challenges and uncertainties surrounding the Chinese market.
While China remains a vital economic powerhouse, its economic slowdown, lack of convincing government responses, and mounting geopolitical tensions have led to a reassessment by both foreign automakers and international investors.
