Business is booming.

China’s zero-Covid policy prompts European companies to review operations

Almost one-quarter of European companies in China are reviewing their investments as business confidence plummets in the world’s biggest consumer market and factory floor.

According to a survey by the European Union Chamber of Commerce in China, 23 per cent of the region’s companies were “considering shifting” current or planned investments outside China’s borders in response to President Xi Jinping’s stringent zero-Covid policy.

The survey results indicated the risks of long-term consequences for international business of Xi’s policy of eradicating the virus, with snowballing economic and social costs from snap lockdowns, closed borders and fastidious mass testing.

It also highlighted rising fears and greater “attention in boardrooms” over worsening geopolitical tensions stemming from Russia’s invasion of Ukraine. Beijing has refused to join international condemnation of the war and has provided support by bolstering Vladimir Putin’s battered economy.

Seven per cent of European companies operating in China said they were reviewing investments directly because of the war in Ukraine, and one-third believed the market had become less attractive since Moscow’s invasion in February.

“The current situation has given many pause for thought, and some may vote with their feet should the current wave of uncertainty continue,” the chamber warned on Monday.

But it is not just European companies decoupling from China and stoking concerns about deglobalisation.

More than a quarter of US manufacturers in China are moving production of their global products out of the country while accelerating localisation of their supply chains inside China, according to a survey published by the American Chamber of Commerce in Shanghai last week.

Nine in 10 US companies across the manufacturing, consumer and services sectors have slashed their revenue forecasts for China this year.

China’s economy is wobbling on the edge of a rare recession this quarter after the zero-Covid policy forced hundreds of millions of citizens into partial or full lockdowns and caused widespread supply chain disruption.

The EU chamber report, which drew on a flash survey from late April and an earlier survey, said that more than 90 per cent of its respondents were affected by port closures, road freight decreases and the spiralling costs of sea freight.

More than three-quarters of the companies also said that the zero-Covid measures had decreased China’s attractiveness as an investment destination. Companies also highlighted longstanding grievances such as forced technology transfers, unfavourable treatment compared with Chinese rivals and ambiguous rules and regulations.

However, the survey, which was conducted with German consultancy Roland Berger, also illustrated that even after decades of booming growth, some European companies still predicted a “great deal of potential” in the Chinese market.

“The rewards of staying the course and navigating the storm are plain to see,” the report said, pointing out that before the Omicron outbreak and war in Ukraine, about 30 per cent of companies planned to increase their shares in local joint ventures.

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    China’s zero-Covid policy prompts European companies to review operations – Finance Essence

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