- Some 23 percent of European terms are considering moving current or planned investments out of China due to Covid-19 controls, a new survey indicates.
- The survey also found that 60 percent of companies have cut their China revenue forecasts for 2022 and a third have reduced headcounts due to virus controls
People line up for mass Covid-19 testing in Haidian district, Beijing. Photo: Reuters
China’s strict zero-Covid rules and Russia’s war in Ukraine have undermined China’s attraction to foreign companies, with more European firms considering shifting their investment in the country, according to a survey by a major European business lobby released at the end of April.
China has imposed strict controls to curb its worst Covid-19 outbreak in more than two years, putting full or partial lockdowns on cities across the nation, despite persistent warnings from businesses and experts about the impact on already fragile economic growth and employment.
A flash survey by the European Union Chamber of Commerce in China and management consulting firm Roland Berger said 23 percent of firms polled are considering moving current or planned investments out of the country due to the Covid-19 controls.
That was more than double the number of companies that were considering doing so at the beginning of the year, and marked the highest proportion in a decade, the survey said.
China’s Foreign Ffirms Decry ‘Rapidly Mounting’ Costs Of Zero-Covid Measures
Some 75 percent of respondents said China had better shift away from the draconian Covid-19 containment measures it uses at the moment, with 91 percent believing the country should focus on vaccinating the population.
Chamber president Joerg Wuttke said European companies were calling for action from the government.
“It is basically a wake-up call for the government, something has to happen, China is 30 percent of global trade, we need China to be efficient … China has the best infrastructure and the most efficient clusters.” told Joerg Wuttke.
“If they are not available or hampered by Covid policies, we have big problems globally.”
He also said that 7 percent of the firms polled were considering shifting from China – a staunch ally of Russia – due to the war in Ukraine.
“Both factors are creating severe challenges to European business in China,” the business lobby said in its survey.
Nearly all European companies have been affected by port closures, a drop in road freight, and surging delivery costs.
“Supply chains have taken a pounding, both upstream and downstream,” the chamber said.
“The predictability of the Chinese market was always one of its strengths. That has gone out the window”, Joerg Wuttke stated.
The survey found that 60 percent of firms have cut revenue forecasts for 2022 and a third have reduced headcounts due to virus controls. Joerg Wuttke indicated that if the situation in China continues, European companies would increasingly figure out alternatives to China.
“A predictable, functioning market is better than one that, despite having high growth potential, is volatile and suffers from supply chain paralysis,” the chamber said in a statement attached to the survey.
In a letter to Vice-Premier Hu Chunhua that was leaked last in April 2022, Joerg Wuttke called for China to shift away from the “old toolbox” of mass testing and isolation and instead employ “the best mix” of vaccinations and boosters, while allowing positive cases with no or mild symptoms to quarantine at home.
But Joerg Wuttke shared he did not expect Beijing to adjust its zero-Covid strategy any time soon.
“As long as China does not signal that it is learning how to live with Omicron, we have to assume that China will not change the zero-tolerance policy…Though the hardline policy worked well initially, China runs the risk of becoming a victim of its past success, he said.
“What our survey is indicating is there will possibly be less investment into China and the substitutes will be in Southeast Asia,” Wuttke remarked. “And that is very easy.”
The War Is Exacerbating Challenges Faced By Businesses As Supply Chains Disintegrate
Adding to challenges for foreign-based companies was Russia’s invasion of Ukraine. The survey showed that 78 percent of firms think China is a less attractive investment destination because of its hardline pandemic containment, while the Ukraine war led to one-third of respondents holding the same view of the country.
“The war is exacerbating challenges faced by businesses as supply chains disintegrate,” Joerg Wuttke said. “Nearly two-thirds of respondents have faced disruptions transporting goods to and from Europe.”
Rising material and energy prices have also influenced more than half of European firms polled, it added.
Denis Depoux, global managing director of Roland Berger, said the pandemic controls have affected companies’ ability to make sound business decisions in an overall deteriorating economic environment due to the Ukraine war.
“A clearer crisis exit strategy would help maintain confidence in a European business community still highly committed to Chinese markets,” said Denis Depoux.
In spite of the frustrations of foreign businesses, China is still on a charm offensive to woo more overseas investors.
“[We should] actively respond to demands of foreign-funded enterprises for ease of doing business in China, to stabilize the bedrock of foreign trade and foreign investment,” the 25-member Politburo, the center of power within the Communist Party, said in a statement after a meeting last Friday.
Wuttke said the message was welcomed, but more work was needed.
“The core of what we are saying today is that we cannot make a decision if we cannot enter the country, we cannot get our goods moving within China, and we don’t know when that is going to happen, because no one tells us when China changes policy,” he said, adding the attitude does not work anymore.
Source: Orange Wang & Wendy Wu, China Macro Economy
