US companies in China cut revenue forecasts and investment plans
Truck drivers, like the one pictured here in Shanghai in late April, generally must present valid negative virus tests in order to move goods between cities in China. The American Chamber of Commerce in China said members reported varying implementation of Covid controls by city and province.
CGV | Visual Group China | Getty Images
BEIJING — More U.S. businesses in China are cutting revenue expectations and plans for future investments as Covid controls drag on, a new survey finds.
Between the end of March and the end of April, the share of respondents reporting an impact from Covid restrictions rose by 4 percentage points to 58%, according to a survey by the American Chamber of Commerce in China published on Monday.
While not a big increase, 4 or 5 percentage points each month could be “very significant” if Covid controls persist for another five months, Michael Hart, president of AmCham, told CNBC during an interview. a telephone interview.
Asked what impact the Covid restrictions will have if they last into next year, more than 70% of respondents said their income or profits would be reduced.
The latest study, conducted from April 29 to May 5, covered 121 companies operating in China. This period included the latest Covid restrictions in the capital Beijing.
The previous survey was conducted with AmCham Shanghai in late March, just as Shanghai’s initial plan for a two-part lockdown began. These measures lasted much longer than the initial week.
Over the past few days, the city of Beijing postponed the reopening of schools until further notice and ordered all non-essential businesses in a major business district to temporarily close or have their staff work from home.
“There are very few aspects of the economy that seem to be working,” said one survey respondent in the report, which withheld the respondent’s name and location. “[While] COVID-19 restrictions can be managed, which [will be increasingly difficult to] managing is the lack of overall growth in the economy and what appear to be growing economic headwinds.”
Companies scale back investment plans in China
Prolonged Covid controls – as mainland China grapples with its worst virus outbreak since the start of 2020 – have further discouraged US companies from investing in the country, the AmCham survey found.
The percentage of respondents reporting a decrease in investments following the latest outbreak and restrictions rose to 26% from 17% a month earlier.
Those declaring an investment lag fell slightly to 26% from 29% in the previous survey. The proportion who said it’s too early to predict or were undecided on the impact on investment plans rose to 44% in the latest survey, from 30% in the previous study .
Official figures show a steady increase in foreign direct investment from all countries to China, up 31.7 percent year-on-year in the first quarter to $59.01 billion.
China’s Ministry of Commerce did not comment until its regular press conference on Thursday. Asked at the end of April about the challenges of foreign companies, the ministry said it would do everything possible to ensure the resumption of work and production.
Since China tightened border restrictions in 2020 to control Covid transmission from travelers into the country, foreign trade organizations have said it has been difficult to bring in staff. This is because there is a lack of international flights to China and quarantine delays on arrival of at least two weeks, if not longer.
“If you want an investment, you have to allow travel,” Hart said, noting the impact will be felt in the long run.
“In two, three, four years, I predict a massive drop in investment in China because no new projects are launched, because people cannot go in and look into space,” he said. declared.
If Covid controls persist next year, 53% of respondents to AmCham’s latest survey said they would cut back on investment in China.
By sector, technology and research and development companies reported the highest impact of Covid controls on their investment plans, with 53% of respondents in the sector expecting delays or cuts.
In contrast, consumer companies were the only ones to report plans to increase investment, despite accounting for just 4% of industry members. For industry, 36% planned to cut investment, while 29% said they would delay investment following the latest outbreak.
The consumer sector was also the only sector to report some increase in annual revenue projections despite the impact of Covid, at 3% of respondents. However, the majority of consumer companies, 69%, said they were reducing their revenue forecast for the year.
Business has not fully recovered
While Shanghai authorities have announced whitelists that allow just under 2,000 companies to resume production, AmCham’s latest survey found that among respondents with operations in Shanghai, 15% said that they hadn’t reopened yet.
This does not mean that the majority are completely back to work.
Hart said anecdotally that some companies he spoke to last week in Shanghai were operating at 30% to 50% capacity. Many suppliers remain closed, while shipping parts and goods to customers is still difficult, he said.
Several different cities across China have adopted some form of lockdown, and truck drivers often need special passes and frequent negative virus tests to transport goods.
Part of the difficulty is the inconsistent implementation across provinces and cities of what China calls its “dynamic zero-Covid” policy, Hart said.
At the local level, “government officials are looking for practical ways for businesses to fix their problems and get back to work, as these people are judged on their economic performance,” Hart said. “When we talk to the government at [a] high level, it’s not a focus on economics. It’s a focus on health and reducing Covid.”
“Based solely on the experience of our own companies in the United States, Europe and other markets, we have seen that other countries have adopted a different strategy,” he said. “We’re just asking for a little more balance.”
Last week, Chinese President Xi Jinping led a meeting that stressed the country must “resolutely fight” against any questioning of virus control policies. The meeting also warned of the economic consequences if China does not stick to its aggressive zero Covid policy.
In November, China’s Center for Disease Control and Prevention published a study which warned that switching to other countries’ “coexistence” strategy would likely lead to hundreds of thousands of daily cases – devastating the national medical system.
For Monday, mainland China reported 349 new Covid cases with symptoms and 3,077 without symptoms, mostly in Shanghai – which reported six deaths for the day.