‘Huge uncertainty’ for EU businesses over China’s Covid restrictions, chamber warns

Many European companies are rethinking their investments in China due to its strict Covid controls, a leading business group said on Monday, warning that the disruptions had hampered operations.

While the rest of the world has gradually removed coronavirus curbs, China has remained committed to its zero Covid strategy, using lockdowns and mass testing to eradicate all infections.

But that strategy has hammered businesses and scolded supply chains – 60% of respondents to a survey of European companies said it had become more difficult to do business in China, largely due to the covid checks.

“We hope that 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 out of this zero tolerance Covid strategy because it is causing huge uncertainty and it is definitely not good for investing.”

The chamber conducted the survey of more than 600 member companies in February and March, just as strict lockdowns were imposed in several regions to control China’s worst Covid outbreak in two years – from the Shanghai CBD to the northern province of Jilin.

The body also conducted a follow-up in April to assess the impact of the shutdowns and the Russian invasion of Ukraine.

It revealed that 92% of member businesses were affected by supply chain issues, and three-quarters said their operations had been negatively affected by Covid checks.

Additionally, 60% of respondents said in April that they had lowered their revenue projections for 2022.

The war in Ukraine has also had an impact on confidence – a third of companies surveyed cited geopolitical tensions as the reason the Chinese market is becoming less attractive.

“China’s role over the past two years in bolstering European companies’ global revenues is likely to decline,” the report released on Monday said.

“And recent events have many people wondering how many eggs they are willing to keep in their Chinese basket.”

Covid containment measures have also hampered the ability of European companies to recruit international and local talent, the chamber said.

Its annual survey found that 58% of companies were having difficulty recruiting international and local talent, pointing to Covid checks and “a multitude of ever-changing visa and work permit procedures and extreme limitations on international travel.” inside and outside China.

“The world does not wait”

China is the world’s second-largest economy with a huge market, making it difficult for businesses to exit.

“Companies, companies are not leaving China, because the market is too big, the market is too big, and there are certainly many growth opportunities ahead,” Schoen-Behanzin told AFP.

“But they localize, they relocate and they rethink their footprint in China, in Asia,” she added.

“They change, especially future investments.”

However, if the Covid restrictions drag on for another year, businesses could start to feel even more pain.

“The world is not waiting for China,” Schoen-Behanzin said.

“If there is no change, then companies will definitely start thinking about backup plans and obviously they will go into other markets.”

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Post expires at 7:59pm on Thursday June 30th, 2022