Many European firms are reconsidering investing in China because of tight Covid controls, a leading business group said on Monday, warning that disruptions have impacted operations.
While the rest of the world has steadily removed containment of the coronavirus, China has committed to its zero-Covid strategy, using lockdowns and mass testing to stamp out all infections.
But that strategy has hit companies and disrupted supply chains – 60 per cent of respondents in a survey of European companies said it has become more difficult to do business in China, in large part due to Covid controls.
“We hope China really wakes up,” Bettina Schoen-Behanzin, vice president of the European Union Chamber of Commerce in China, told AFP.
“(We hope) they find a way to get out of this zero tolerance Covid strategy because it creates tremendous uncertainty and it’s certainly not good for investments.”
The chamber conducted the survey of over 600 member companies in February and March, as strict lockdowns were imposed in several areas to control China’s worst Covid outbreak in two years – from business hub Shanghai to northern breadbasket province Jilin.
The panel also conducted a follow-up in April to assess the impact of the lockdowns and Russian invasion of Ukraine.
It found that 92 percent of member companies were affected by supply chain issues and three-quarters said their operations were negatively impacted by the Covid controls.
In addition, 60 percent of those surveyed in April said they had lowered their sales forecasts for 2022.
The war in Ukraine also impacted confidence, with a third of surveyed companies citing geopolitical tensions as a reason the Chinese market has become less attractive.
“The role that China has played over the past two years in boosting the global revenues of European companies is expected to diminish,” said the report released on Monday.
“And recent events have many wondering how many eggs they are willing to keep in their china basket.”
The Covid containment measures are also hampering the ability of European companies to hire international and local talent, the chamber said.
The annual survey found that 58 percent of companies were struggling to recruit international and local talent, citing Covid controls and “a plethora of ever-changing visa and work permit procedures and extreme restrictions on travel to and from China”.
– ‘The world will not wait’ –
China is the second largest economy in the world with a huge market but one that makes it difficult for companies to move away.
“Companies, companies are not leaving China because the market is too big, the market is too important and there are certainly many growth opportunities ahead,” Schoen-Behanzin told AFP.
“But they’re localizing, they’re moving abroad, and they’re rethinking their presence in China, in Asia,” she added.
“They are shifting, especially future investments.”
However, if Covid restrictions drag on for another year, businesses could feel even more pain.
“The world is not waiting for China,” said Schön-Behanzin.
“If there is no change, companies will definitely start thinking about backup plans and they would obviously go to other markets.”
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