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

Nearly a quarter of European companies in China are reviewing their investments as business confidence plummets in the world’s largest consumer market and factory floor.

According to a survey by the European Union Chamber of Commerce in China, “23 percent of companies in the region considered moving current or planned investments outside China’s borders” in response to President’s strict zero-covid policy Xi Jinping.

The study findings pointed to the risks of long-term consequences for international business from Xi’s policy to eradicate the virus, with snowballing economic and social costs from rapid lockdowns, closed borders and demanding mass testing.

It also highlighted growing fears and increased “boardroom attention” over the worsening geopolitical tensions resulting 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 percent of European companies operating in China say they are immediately reviewing investments because of the war in Ukraine, and a third believe the market has become less attractive since the invasion of Moscow in February.

“The current situation has given many food for thought and some will vote with their feet if the current wave of uncertainty continues,” the chamber warned on Monday.

But it is not only European companies that are disconnecting from China and raising 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 the localization of their supply chains in China, according to a survey published last week by the US Chamber of Commerce in Shanghai.

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

Chinese economy falters on the brink of a rare recession this quarter after zero-covid policies forced hundreds of millions of citizens into partial or complete lockdowns and caused widespread supply chain disruption.

The EU chamber report, which was based on a late April flash survey and an earlier survey, said more than 90 percent of respondents were affected by port closures, declines in road freight and the rising cost of ocean freight.

More than three-quarters of companies also said the zero-covid measures had reduced China’s attractiveness as an investment destination. Companies also pointed to longstanding grievances, such as forced technology transfers, unfavorable treatment compared to Chinese rivals, and ambiguous rules and regulations.

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

“The rewards of following the course and navigating the storm are plain to see,” the report said, noting that before the Omicron outbreak and the war in Ukraine, about 30 percent of companies planned to sell their shares. in local joint ventures.

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