China’s economic environment is giving many foreign businesses headaches. The world’s second largest economy barely avoided contraction in the second quarter as its GDP expanded just 0.4% year on year. In September the World Bank predicted that China’s GDP growth would decrease sharply to 2.8% this year. Meanwhile, economies in the Asia-Pacific region are expected to hit 5.3% growth. This means that China is lagging behind for the first time in 30 years.
Under these circumstances, foreign businesses are struggling. In Shanghai, overseas investment projects decreased 20.3% between June and July compared to last year. Several big brands have exited the country. Recently, Carrefour, a major French retailer, closed its last store in Henan on November 15. Carrefour was the first in a batch of foreign retail enterprises to enter mainland China. It was in Henan for 16 years and opened 16 stores, all of which have closed in disgrace.
In addition to Carrefour, Walmart closed more than 30 stores in China last year. China’s large local supermarket chain, Yonghui Supermarket, closed hundreds of stores, evaporating 84 billion yuan (nearly $16.45 billion) in market value.
Earlier in July, Airbnb announced it was removing all 150,000 of its listings in China. The departure came after six years in the country.
Leaving China has become a trend. Voice of America cited a recent survey on 500 Taiwanese companies. The Center for Strategic and International Studies found that over 25% of the firms had partly relocated their production or they were sourcing outside China. While the other 33% is considering doing so. Only one-third said they were not going anywhere. Another survey from Amcham China reflected a similar trend for foreign investment.
Xu Gao, a senior economist with Bank of China International, wrote, “What is really making people vigilant are the many anomalies in the economic data. It seems that the old economic rules are being broken, making it hard for people to form clear expectations and have strong confidence in the country’s economic outlook.”
China’s economy is facing many challenges. Namely, from low import growth, a liquidity trap, deflationary pressure, a real estate crisis, to geopolitical tensions between China, Taiwan, and the U.S., just to name a few. However, foreign investors and business owners’ all voice their frustration about the same major concern—the draconian “zero-COVID” policy and its lockdowns.
The struggle is real. According to Moore MS Advisory, businesses are constantly in a state of confusion not knowing the timing of any restrictions. Temporary and permanent lockdowns have made operation costs spike. Human resources issues have also risen. Traveling in and out China for individuals has become difficult with expensive airfares, lengthy quarantines, and complicated departure procedures. On top of that is a disruption in supply chains and logistics.
Taiwan businessman Liao Chin-chang told VOA, “There are so many ships anchored in Shanghai harbor, the shipments can’t go in or out of the city. China’s economy froze in a matter of seconds. But Xi Jinping doesn’t care. He needs stability for his enthronement.” He wondered how Xi could still seal the whole city when the economy was in very bad shape.
Liao came to China in 1995 and invested in many factories in Guangdong city. At the time it was the cheap labor and the Chinese regime’s welcome policy that lured him to the mainland. However, after six years of seeing a drop in revenue plus two years of constant power cuts and lockdowns, the Taiwan businessman decided to go home to Taiwan.
Of course, not all are leaving. Moving production out of China is a complicated and uneasy process. In fact, despite the frustration over the COVID policy, many firms are staying and clinging to the hope that this is just a short-term inconvenience.
How does the Chinese communist regime react to all of this? One thing for sure is that it is aware of the negative impact of its COVID policy. So it does have some plans to reduce investor anxiety and improve foreign investment services. In November, the Chinese state council announced a number of easing measures in the “zero-COVID” policy. Foreigners will spend less time in quarantine upon arrival in China. There will be fewer canceled flights and important manufacturing suspensions. These measures are a very welcome shift for economists and business groups.
Although there were a few positive responses from the stock market after the state council’s announcement, foreign investors remain doubtful of the governemnt’s policy. The British Chamber of Commerce in China wrote to SCMP, “Over the past six months, we have had reports of decreased centralized quarantine times and the like, however in reality it seems that there is often a considerable lag between the announcement of such relaxations and the implementation of these, as well as a noticeable gap between what is announced, and what is actually enforced.”
Indeed, in the same month, China’s top political body said that it will “firmly implement the general policy of dynamic zero [Covid].”
Economists from Nomura predict that the latest easing COVID moves are unlikely to have much of a positive impact on the economy. They expect that the “zero-COVID” measures will last until March next year. With all such uncertainties weighing on the economy, it seems like China will see more firms leaving in the near future.