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China's Covid rules batter business confidence: EU Chamber

·2-min read
China's virus containment measures, including in Shanghai, have caused "disruption on an epic scale", the European Chamber of Commerce said (AFP/Jade GAO) (Jade GAO)

China's strict zero-Covid policy has led to a plunge in confidence among European companies operating in the country as supply chains are tangled, revenue projections fall and staff leave, according to a business group survey released on Thursday.

Beijing remains wedded to its strategy of stamping out coronavirus clusters with lockdowns and mass testing, even as the fast-spreading Omicron variant makes this increasingly difficult.

But the European Union Chamber of Commerce said in a report that the strict containment measures in dozens of Chinese cities, including the financial capital Shanghai, had caused "disruption on an epic scale".

"While the war (in Ukraine) has had an impact on European businesses operating in China, Covid-19 presents a far more immediate challenge and has caused a considerable drop in business confidence," the Chamber added.

Its survey of more than 370 members was conducted in late April.

Nearly a quarter of respondents are now considering moving current or planned investments in China to other markets -- more than doubling from two months ago.

Almost 60 percent decreased their revenue projections for this year, while around a third saw a drop in staffing, results showed.

Most companies also reported a negative hit on supply chains, with struggles accessing raw materials and components, or delivering finished products.

"The Chinese market has lost a considerable amount of allure for many respondents," the Chamber said, adding that Covid measures have made it less attractive for investment.

"The predictability of the Chinese market is gone," EU Chamber President Joerg Wuttke told reporters on Thursday, adding that the current "whack-a-mole" method of stamping out flare-ups is unnerving.

"The fact that it took down Shanghai has sent shockwaves through headquarters... Where is that going to end?" Wuttke said.

The Chamber said a vast majority of firms surveyed agreed with proposals to focus more on vaccinating China's entire population, allowing mild positive cases to quarantine at home, and allowing mRNA vaccines to be used.

For now, Wuttke said China's zero-Covid policy is unlikely to change, as it has been a strong political signal of Beijing's triumph.

But he cautioned that "China runs the risk of becoming a victim of its past success."

Businesses are also being bogged down by the war in Ukraine, the survey showed, with the disruption of logistics to and from Europe.

Rail freight is no longer an option and aircraft need to circumvent Russian and Ukrainian airspace -- increasing distance and costs.

And "the susceptibility of operations to future shocks must be weighed, in particular the prospect of a deterioration in EU-China relations", the Chamber said.


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