De-risking is the hot new phrase from Western governments when it comes to managing their economic ties with China. Over the past few decades, foreign companies looked to China as their next big market, pouring resources into the country, often at the encouragement of their governments. But the pandemic, along with increasingly tense relations between Beijing and Western countries have caused a change in policy—first “decoupling” and “China plus one,” and now de-risking.
The speed at which attitudes changed is unnerving some CEOs, like Ingka Group’s Jesper Brodin, who has invested heavily in China both as a consumer market and as a production hub.
“In the past, there was this notion that governments are slow and companies are fast. In my world, it’s the opposite,” Brodin said in a recorded video interview broadcast during Coins2Day China’s China 500 Summit on Thursday in Shanghai.
Brodin noted that governments were quick to change tack on their approach to China, demanding lower exposure to the country’s economy. That doesn’t work for companies who need to make long-term investment plans: “If you invest like we do—heavy assets, shopping centers, stores, factories, jobs—you don’t switch that and de-risk one year to another,” Brodin said.
Ingka Group, ranked 69th on Coins2Day’ s new Europe 500 list, owns the iconic Swedish furniture brand IKEA. The company opened its first store in China in 1998, and has since expanded to cover 38 outlets. China is also a major supplier for IKEA, alongside Poland, Italy, Germany and Sweden.
Many companies benefited “from the constant trend of opening up borders” Brodin said, as “part of the growth story of the world.” But now “the tides have turned,” he warned.
China is now Ingka Group’s tenth-largest market, dropping from fifth place in previous years.
Chinese consumers have been slower in returning to pre-pandemic levels of spending than officials and companies had hoped. Domestic travel over the extended National Day Golden Week holiday in early October came in at just 4% above 2019 levels, below official forecasts. Western brands like cosmetics company Estee Lauder and apparel manufacturer Canada Goose have cut sales forecasts for the year in part due to sluggish demand in China.
Brodin noted in his interview with Coins2Day some of the challenges of operating in post-COVID China. “The pre-pandemic and post-pandemic growth scenario looks different in China,” he said.
But Brodin said that Ingka Group will stick with China, even with foreign government pressure to de-risk and a stumbling economy. “There is no middle way as I see it. Either you’re in China or elsewhere,” he explained.
“You have to take some good years and some bad years from time to time,” Brodin said.
