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More U.S. Companies In China Cut Forecasts, Scale Back Investments As Covid Persists

May 10, 2022

More U.S. businesses in China are cutting revenue expectations and plans for future investment as Covid controls drag on, a new survey found.

Between late March and late April, the share of respondents reporting an impact from Covid restrictions rose by 4 percentage points to 58%, according to an American Chamber of Commerce in China survey released Monday.

While that’s not a large increase, 4 or 5 percentage points every month could be “very significant” if Covid controls persist for another five months, Michael Hart, AmCham president, told CNBC in a phone interview.

Asked what impact Covid restrictions will have if they last for the next year, more than 70% of respondents said their revenue or profit would be cut. The latest study, conducted from April 29 to May 5, covered 121 companies with operations in China. That time period included the latest Covid restrictions in the capital city of Beijing.

The prior survey was conducted with AmCham Shanghai in late March, just as Shanghai’s original plan for a two-part lockdown were starting. Those measures have lasted for far longer than the initial week.

In the last few days, Beijing city postponed the reopening of schools until further notice, and ordered all non-essential businesses in a major business district to close temporarily or have their staff work from home.

“There are very few aspects of the economy which seem to be functioning,” a survey respondent said in the report, which withheld the respondent’s name and location. ”[While] COVID-19 restrictions can be managed, what [will be increasingly difficult to] manage is lack in overall growth of the economy and what appear to be growing economic headwinds.”

Companies cut China investment plans
The prolonged Covid controls — as mainland China tackles its worst virus outbreak since early 2020 — have further discouraged U.S. businesses from investing in the country, the AmCham survey found.

The percentage of respondents reporting decreased investments as a result of the latest outbreak and restrictions rose to 26% versus 17% a month earlier.

Those reporting a delay in investments fell slightly to 26%, versus 29% in the previous survey. The proportion who said it’s too early to predict or haven’t decided on the impact on investment plans rose to 44% in the latest survey, up from 30% in the prior study.

Official figures show a steady increase in foreign direct investment from all countries into China, up by 31.7% year-on-year in the first quarter to $59.01 billion.

China’s Ministry of Commerce did not have a comment ahead of its regular press conference on Thursday. When asked in late April about foreign businesses’ challenges, the ministry said it would make all effort to ensure resumption of work and production.

Since China tightened border restrictions in 2020 to control the transmission of Covid from travelers into the country, foreign business organizations have said it is hard to bring in staff. That’s because there’s a lack of international flights into China and quarantine times upon arrival of at least two weeks, if not longer.
“If you want investment you have to allow for travel,” Hart said, noting the impact will be felt in the long term.

“Two, three, four years from now I predict a massive decline in investment in China because no new projects are being teed up, because people can’t come in and look at space,” he said.
If Covid controls persist for the next year, 53% of respondents to AmCham’s latest survey said they would reduce investment in China.

By industry, the tech and research and development businesses reported the highest impact of Covid controls on their investment plans, with 53% of those surveyed in the sector expecting delays or reductions.

On the other hand, consumer businesses were the only ones to report plans to increase investment, albeit just 4% of members in the sector. For the industry, 36% planned to reduce investment, while 29% said they would delay investment as a result of the latest outbreak.

The consumer sector was also the only one to report some increase in yearly revenue projections despite the Covid impact, at 3% of respondents. However, the majority of consumer businesses, or 69%, said they were cutting revenue expectations for the year.

Business hasn’t fully resumed

While Shanghai authorities have announced whitelists that allow just under 2,000 businesses to resume production, AmCham’s latest survey found that among respondents with Shanghai operations, 15% said they had yet to reopen.

That doesn’t mean the majority are fully back at work. Hart said anecdotally, some companies he spoke with last week in Shanghai were operating at 30% to 50% capacity. Many suppliers remain closed, while shipping parts and goods to customers is still challenging, he said.

Several different cities across China have enacted some form of lockdown, and truck drivers often need special passes and frequent negative virus tests in order to transport goods. Part of the difficulty is 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 companies to solve their issues and get back to work, because those people are judged by economic performance,” Hart said. “When we talk to government at [a] high level, it’s not a focus on the economy. It’s a focus on health and Covid reduction.”

“Just based on our own companies’ experience in the U.S. and Europe and other markets, we have seen that other countries have taken a different strategy,” he said. “We’re just asking for a bit more of a balance.”

Last week, Chinese President Xi Jinping led a meeting that emphasized the country should “resolutely fight” against all questioning of virus control policies. The meeting also warned of economic consequences if China didn’t stick to its dynamic zero-Covid policy.

In November, China’s Center for Disease Control and Prevention published a study that warned that shifting to the “coexistence” strategy of other countries would likely result in 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.
























































Source: CNBC
Image Source: Pixabay