How many foreign companies || After Shanghai lifts the lockdown but insists on clearing it?

How many foreign companies:

How many foreign companies want to "bye-bye, where are you" after Shanghai lifts the lockdown but insists on clearing it?


The opening of major Chinese cities this week has not allayed the concerns of foreign companies in China. Trapped by ongoing disruptions from the COVID-19 policy and slowing economic growth in China, many foreign companies have begun to reconsider their long-term investment plans in China.

The Shanghai government has allowed all enterprises to resume work from Wednesday (June 1), and employees can go to work in their units. The city also introduced 50 measures to revive the economy. However, those who wish to take public transportation to work still need to present a nucleic acid report within 72 hours, and residents are also required to abide by strict epidemic prevention regulations in all aspects of service consumption.

The news of the resumption of work has given foreign companies in China some respite that has been hit hard by the current round of blockades, but the impact of the turmoil on foreign companies is unlikely to disappear anytime soon. What China's current anti-epidemic policies will mean for foreign companies in the coming months and years remains a big question.

Doug Barry, a spokesman for the US-China Business Council, told VOA: "The zero-corona policy continues to be a major drag on business confidence. As long as the policy remains in place, any new outbreaks will lead to new disruptions. Companies must have backup plans in place. ."

 A man collects a swab at a nucleic acid testing site in the Lujiazui financial district in Shanghai, China, on June 2, 2022.

The British Chamber of Commerce in China said on Tuesday that the British business community's perception of China had reached a "tipping point", with uncertainty hurting business confidence. The chamber's survey of more than 600 members found that 74 percent of companies were "severely affected" by China's zero-zero policy, and nearly 50 percent had delayed investment plans.

The chamber wrote in its latest position paper: 

"The recent sporadic nationwide outbreak of Covid-19 and the corresponding rapid lockdowns have taken away one of the things most businesses can rely on: a stable and relatively predictable business surrounding."

As the world turns to coexistence with the virus, China remains committed to a policy of zero tolerance for new cases of the virus. For nearly two months, Shanghai, China's main economic center, has been under strict lockdown, with residents forced to stay at home, factories forced to close, and retail and service industries devastated.

"We are seeing China's leadership abandon long-term economic and political goals in favor of short-term, politically motivated pursuits," Logan Wright, an analyst at the Rhodium Group, an economic research firm, said in an analysis on Tuesday. achievements against an unrelenting enemy - the Omicron variant of the coronavirus."

Reconfigure the supply chain:

Faced with supply chain disruptions caused by China's coronavirus lockdown, industry giants such as Apple, the most valuable U.S. company, have moved to expand production outside China. Apple has moved some iPad tablet production from China to Vietnam for the first time, the company's second major product line in Vietnam after Air pods, Nikkei Asia reported on Wednesday.

Luca Maestri said:

Apple Chief Financial Officer Luca Maestri said in April that the company was hit by supply constraints caused by China's new crown policy during the quarter, which could reduce total sales by as much as $8 billion. Currently, more than 90% of Apple products are produced in China by contract manufacturers.

The supply chain migration promoted by technology giant Apple may drive other small and medium-sized companies to the sidelines, and contribute to the formation of industrial clusters in Southeast Asia. Some foreign companies have long considered how to reduce their reliance on Chinese manufacturing, but are constrained by the huge cost of shifting supply chains.

With deepening manufacturing technology and relatively cheap labor costs, Southeast Asian countries, mainly Vietnam, have in recent years attracted investment from a group of foreign companies seeking to diversify production and reduce risks in China.

In February, South Korean electronics components maker Samsung Electro-Mechanics announced an additional US$920 million investment in the northern province of Tai Nguyen, bringing its total investment in the local industrial park to US$2.27 billion. As early as 2020, Samsung decided to transfer its PC production in China to Vietnam, which is now Samsung's most important production base in the world.

The Covid-19 zero policy may just be the last straw for multinational companies to decide to move production out of China. U.S.-China trade tensions, China’s ideological censorship of foreign investment, and silence over Russia’s invasion of Ukraine have made things increasingly difficult for foreign businesses in China.

Even before the latest wave of outbreaks in China this year, more than a third of U.S. companies told the U.S. Chamber of Commerce this spring that they would reduce their investment in China because of the country's policy environment.

Raine Mahdi, the founder of logistics company ZipFox, told VOA that he is seeing more U.S. organizations migrating creation from China to the U.S. or to neighboring Mexico. Mahdi's company acts as a bridge between U.S. businesses and Mexican manufacturers.

"These taxes should be a present moment arranging strategy, presently they are the new ordinary. People are buying Chinese goods mainly for cost, and that advantage is fading fast,” Mahdi said. "And then there's the Ukraine conflict. China doesn't make it clear which side they're on, which makes people uncomfortable. For some, continuing to send dollars to China may even feel like a national security risk." 

Wait and see China's economic prospects:

Since the outbreak of the epidemic this year, more foreign companies have opted to shelve new investments in China, closely watching the country's economic trends to make their next business decisions.

"A portion of these organizations have been in China since the authority (U.S.- China) relationship or near 50 years. They know the risks and they know the rewards,” Barry said. "An intelligent reaction is to check new speculation and keep a watch out. Other companies that have not yet entered China may stay on the sidelines and wait for better economic news.”

However, the latest signals are not optimistic. China's official figures show that total retail sales of consumer goods fell 11.1% year-on-year in April, while industrial added value fell 2.9% year-on-year, both the worst performances since the beginning of 2020.

Chinese authorities have made a rare acknowledgment of the challenges facing the Chinese economy. Last week, Chinese Premier Li Keqiang held a meeting of more than 100,000 people on "stabilizing the economic market", saying that the current difficulties are greater than when the epidemic was severely hit in early 2020, and he asked all localities to do their best on economic stimulus policies.

The analysis pointed out that even after the easing of the blockade, it will be difficult for the Chinese economy to return to the growth rate before the epidemic, and restrictions on the movement of residents will cause direct economic costs in other areas such as production, consumption, employment, and income.

Citing the adverse impact of the new crown blockade policy, UBS last week lowered its forecast for China's economic growth this year from 4.2% to 3%, and JPMorgan Chase lowered its forecast from 4.3% to 3.7%, both significantly lower than China's official setting. 5.5% annual growth target.

Analyst Wright said most of the foreign investment was based on optimism about China's economic growth, and they now question the long-term growth of domestic demand in China.

He said: 

"The sharp descending modification in China's development gauges could speed up the discussion on store network expansion, particularly as hazard expenses fill in China,"

The Financial Times editorial board commented this week that overseas investors' disappointment was largely due to China's longstanding unfair market practices, and called for China to implement economic reforms or face losing investment from overseas companies. risk.

But it presents an opportunity for the Chinese government. , China can use these clear signs to reconsider not only aspects of its 'zeroing' policy, but also its treatment of foreign direct investors."

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