Two years into the Covid-19 pandemic, how are China’s Covid-19 control measures affecting British businesses in China? If the zero-Covid approach remains in place, how will it affect operations, revenue and hiring for British businesses? A new survey published by the British Chambers of Commerce in China finds out
Over the past two years, China has developed and managed effective Covid-19 control measures. Rapid lockdowns, quarantines, mass testing and travel restrictions have helped ensure China has been able to keep Covid-19 outbreaks under control. For everyone in China, the policies have allowed us to work and live safely with minimal risk of infection, and for our businesses to operate, albeit with barriers to travel to and from China.
China now finds itself in the midst of the worst outbreak of Covid-19 since 2020. Circumstances in China have led policymakers to maintain strict zero-Covid policies which are now affecting business confidence in the country. This follows the recent outbreaks, most notably the very challenging situation seen in Shanghai. The risks facing many British businesses operating in China today are at their highest since 2020, as a recent survey conducted by the British Chamber of Commerce in China shows.
BritCham China conducted a survey of its members from 6-14 April 2022, receiving over 200 responses from start-ups, small-medium enterprises and multinational corporations. Multinational corporations constituted 44% of the total respondents, while 43% of respondents were SMEs. The vast majority of respondents reported that their operations in Shanghai (68%), Beijing (34%), Shenzhen (21%) and Guangzhou (19%) had been the most affected. The highest representation of companies is in education (19%), followed by business advisory and business services (11%) and food and beverage (8%).
Overall impact of Covid-19 and general outlook
The overwhelming sentiment expressed by respondents was that the impact of recent outbreaks of Covid-19 on British businesses in China has been severe: 74% of businesses reported a “very serious” or “large” impact on day-to-day business, business operations and cash flows. Almost no companies reported “no impact” or a “positive impact”.
If the current Covid-19 restrictions were to remain in place for the next year, surveyed businesses expected a reduction in:
- Revenue and profit (68% of responses)
- Expatriate and local staff (57% of responses)
- Investment (34% of responses)
- Local (China) operations (34% of responses)
Impact of Covid-19 on supply chains
Companies dealing with physical goods were, predictably, impacted heavily by Covid-19 lockdowns and control measures. “Slow, reduced or halted production or business operations due to supply chain issues” was reported by 42% of goods companies, but only 23% of companies overall.
However, in considering the future effects of Covid-19 control measures on their business, all respondents were concerned about supply chain issues, reflecting the delayed effect of supply chain disruption on the economy. A majority of all respondents (66%) expected continuing Covid-19 control measures to lead to a negative impact on their business through supply chain disruption, which was consistent across businesses of different sizes and across different areas of China.
Goods and services companies consistently reported transportation issues and rising costs as the top two factors causing disruption to their business. Goods companies also reported downstream delivery of products (32%) and the upstream supply of materials (25%) as significant pain points.
A majority of all respondents expected continuing Covid control measures to lead to a negative impact on their business through supply chain disruption
Impact of Covid-19 on labour and talent
A consistent trend that BritCham China has observed since the start of the pandemic is the adverse effects of the pandemic on hiring and retaining staff, particularly foreign staff. This is the case for the service sector in this survey, with 42% of respondents reporting a severe impact on attraction and retention of talent owing to recent Covid-19 outbreaks.
In the longer term, 72% of service sector companies reported a large or noticeable impact on the attraction or retainment of foreign talent based on China’s approach to zero-Covid. Only 7% of firms reported that their hiring and retention had not been impacted at all. For goods firms, the impact was notably less but still significant: 48% reported a large or noticeable impact on attraction or retention.
The three biggest labour-related issues were:
- Entry requirements such as pre-arrival testing and vaccination requirements
- Visa regulations
- Frequent flight cancellations
The education industry specifically stands out due to the difficulty in hiring foreign talent (74% of responses). Forecasts for the upcoming 2022-2023 school year indicate an expected turnover of at least 40% of teachers in foreign passport schools. Should they not be replaced, international families will be forced to relocate to ensure continued education for their children and those considering moving to China will look elsewhere. This will further exacerbate the flow of talent from China in the coming months.
Should [foreign teachers] not be replaced, international families will be forced to relocate to ensure continued education for their children and those considering moving to China will look elsewhere
Impact of Covid-19 on Revenue and Investment
Reduction in revenue is expected by 68% of companies. When asked about the impact of recent outbreaks on their company’s revenue projections, 60% of goods firms unequivocally stated their revenue projections for 2022 have decreased, and a further 32% said it was too early to predict. Services firms answered 51% and 43% respectively. Somewhat surprisingly, 77% of MNCs expect their revenues to decline if Covid-19 restrictions remain in place over the next year, in comparison to 63% of SMEs and start-ups.
Despite severe disruption to business activity, especially for businesses with operations in Shanghai and Shenzhen, there appears to be a tendency towards a cautious approach to revising investment plans, with one-third of respondents reporting that they had not yet decided on any change in investment. Another third of businesses responded that they had delayed investments in China as a result of recent Covid-19 outbreaks, suggesting that businesses were not proactively looking to reduce investment in China.
Nevertheless, when considering how the continuation of current Covid policies over the next year would impact investment decisions, 34% of all businesses expected a reduction in investment if present policies were maintained. The primary driver of these kinds of decisions was instability due to unpredictable and frequent lockdowns and other control measures.
How do British businesses feel about the current Covid-19 restrictions?
Given the success that China has had in managing Covid-19 in the two years following the initial outbreak, it is not surprising that many surveyed companies commended China on its effective contact tracing measures (46%), success at controlling the spread of Covid-19 (41%), and the efficient rollout of the vaccine programme (39%).
However, 33% of respondents indicated they were not satisfied with the management of Covid-19. Comments from respondents also report a sense of exhaustion with travel restrictions, exasperation with the scale of disruptions, and concerns over the continued shrinkage of the foreign talent pool within China.
Key recommendations for managing the Covid situation in China in the future
Respondents offered a number of recommendations for the management of Covid-19 in China moving forward:
- Allowing for home quarantine and/or other substitute options to centralised quarantine on arrival and for asymptomatic and close contact cases
- Allowing more flights into/out of China
- Allowing foreign vaccines into China
- Allowing family members to quarantine
- Improving communications on quarantine and lockdown provisions and ensuring they are standardised across cities
As the world continues to work towards a future where Covid-19 becomes endemic, the approach to controlling the spread of Covid-19 in China is starting to have an increasingly negative effect on businesses. The question now is whether it is possible to mitigate outbreaks through measures that minimise economic and social disruption, but that protect the most vulnerable and do not compromise public health. If not, the foreign companies surveyed by BritCham China suggest that the prospect of prolonged and sporadic disruptions on business operations, people, logistics and supply chains will have significant consequences for their businesses in China.