Foreign businesses in China count rising cost of the pandemic

Mark O'Neill April 11, 2022 10:11

Foreign businesses in China are counting the rising cost of the worst Covid outbreak and are asking the government for an exit strategy, as they lose production and expatriate staff.

Japanese bank Nomura estimated last week that 23 cities and almost 200 million people were under full or partial lockdown. Worst hit is Shanghai, with 24,952 new cases last Saturday, a record. The worst hit sectors are transport, distribution and auto production.

“Everyone is stunned that this happened in Shanghai,” said Joerg Wuttke, president of the European Union Chamber in China. “It is not the middle of Hunan, it is Shanghai.” The city is a hub for foreign business, with dozens of international schools and hospitals.

The Chamber said that the “zero-Covid” strategy was causing growing difficulties moving goods across provinces and through ports, harming factory output. “This is likely to impact China’s ability to export, which could eventually stoke inflation,” said Wuttke. “In China, Covid is still associated as if it were the plague. I think there needs a bit more education from the Chinese authorities, to take the fear away, in order to make people more comfortable to live with this kind of uncertainty.”

Maersk, the Danish shipping company, said that Shanghai’s lockdown would reduce trucking services in and out of the city by 30 per cent. Workers at the port of Shanghai do not come home after work but sleep at the port.

In a survey published earlier this month, AmCham Shanghai and AmCham China said that 99 per cent of respondents had been hit by the latest outbreak. 82 per cent reported slower or reduced production and 86 per cent said their supply chains had been disrupted.

54 per cent have decreased revenue projections for 2022 because of the outbreak and 49 per cent will reduce investment if the current restrictions remain into the next year.

The auto sector has been badly affected. German firm Volkswagen shut factories in Shanghai and Changchun for two days last week. Harald Kumpfert, chairman of the EU Chamber in Shenyang, said that BMW’s plant in the city would have to stop production because it could not maintain its supply chain. “Any transportation is stopped on the road. You would be caught by the police if you are on the road and you do not have special permission,” he said.

One long-term impact of the epidemic in the mainland, as in Hong Kong, has been the flight of foreigners. 81 per cent of the firms in the AmCham survey said that China’s management of the epidemic had impacted their ability to attract or retain foreign staff.
Wuttke said that the number of foreigners in the mainland had halved since the pandemic and could halve again this summer. “In all, I expect that the total population of Europeans in China has fallen so sharply that they would fit into the Bird’s Nest Stadium in Beijing,” he said. It has a capacity of 80,000.

In Shanghai, the number of expatriates has fallen by more than 20 per cent in the past decade from 208,000 to around 163,000. In Beijing, the number has fallen by more than 40 per cent since 2010, to about 63,000.

As in Hong Kong, foreign companies in the mainland want a timetable for the end of the pandemic and the quarantine measures. “We need the business environment to again become predictable,” said Kumpfert. “We need an environment that is conducive to planning, and a clear strategy to get out of the Covid situation, and with better vaccinations and other measures.”

But Chinese officials insist that this is impossible, saying that its medical system could not handle a surge of cases similar to those in France, Spain, Britain or the U.S., which have adopted the policy of “living with Covid”. China has 4.3 intensive care unit beds per 100,000 people, far below the level of developed countries.

A study by the China Centre for Disease Control and Prevention in December found that, if China followed the model of these rich countries, it would have more than 637,000 daily cases, including over 22,000 severe ones. “The number of severely ill patients would quickly overwhelm the health system,” it said.

Pang Xinghuo, deputy director of the Beijing disease prevention and control centre, said last week: “global infections are at high levels. Domestically, the pandemic is spreading widely and rapidly. We will stick to the ‘dynamic zero-Covid strategy.”

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.