KFC, McDonald’s and Starbucks investing heavily in China

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 this 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 the supply chain management firm 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.

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.

“We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest-growing market’s long-term potential,” McDonald’s CEO Chris Kempczinski said as the Chicago-based company announced in November it was increasing its minority 20% ownership of its McDonald’s licensed stores in China, Macau and Hong Kong to 48%.

Burgers and lattes don’t raise the sorts of friction that more high-tech industries have in the complicated U.S.-China relationship. Those strains have persisted under the presidency of Joe Biden, who took office vowing to do more to counter China’s expanding military clout and its menacing of neighbors, to improve the country’s treatment of Uyghur and other ethnic minorities, and to crack down on intellectual property theft.

Relations hit a low point in February when Biden ordered a Chinese spy balloon that traversed the continental United States to be shot down. Beijing, which claims self-governed Taiwan as its own territory, also protested a stopover in the U.S. by the island’s president, Tsai Ing-wen, earlier this year.

China answered fresh U.S. controls on exports of advanced computer chips and the technology to make them with limits of its own on exports of vital commodities like graphite, gallium and germanium, all metals used in making semiconductors, solar panels, missiles and radar.