top of page

Foreign business struggles with Covid- and Ukraine-related uncertainty

In recent days and weeks, Chinese authorities have issued a full or partial lockdown for up to 370 million people in 45 cities, affecting 40% of the Chinese economy. The measures to keep new Covid infections in check have been dealing a heavy blow to both producers and consumers and come on top of the global disruptions to logistics and trade caused by Russia’s invasion in the Ukraine. As a result, Chinese private sector activity measured by the composite PMI in April has fallen the second month in a row, and to the lowest point in two years.

To make sense of the implications of these developments for foreign businesses in China, several foreign chambers of commerce have conducted flash surveys over the past weeks to gauge the sentiment among their members. We analyzed these reports by the Chambers of the US, UK, Switzerland, Sweden, Benelux, Germany and the EU and here are our six observations:

  • Mood – While there are variations in sample size, question types, thematic focus or industry representation, the mood in all surveys is alike: a large majority of companies surveyed said China should shift away from the strict Covid measures and accelerate vaccinations.

  • Supply chains – Disrupted supply chains are a major headache. More than half are affected by higher energy and logistics costs, and up to 85% of companies surveyed struggle to obtain raw materials for their production, while a similarly high number report problems also in their downstream supply chains, mostly owing to missing personnel and transportation issues.

  • Foreign staff – A second major challenge equally shared among all companies is how to retain or replace foreign employees. A trend visible already for a few years, but now clearly compounded by the pandemic, expatriates have been leaving China in large numbers in the past two years. More than one in four companies surveyed reports being severely affected, with strict entry requirements, the cancellation of direct flights and the difficulty to obtain a visa as the main reasons mentioned. In response, up to two thirds plan to accelerate their staff localization.

  • Business impact – Companies feel these disruptions directly in their bottom lines. While for up to 40% it is still too early to gauge the full extent of the impact, over 50% of companies across all chamber surveys expect some hit to their 2022 revenues, with some companies in B2C industries expecting to suffer a hit of over 10%.

  • Impact from war in Ukraine – Besides these Covid-related difficulties, the EUCCC as well as the German Chamber of Commerce (AHK) have explicitly asked their member companies about the impact the war in the Ukraine has on their China business. While two thirds see their supply chains further strained, one in two companies reports higher energy and material costs that put further pressure on margins. As a result of this increasingly volatile geopolitical situation, more than half go so far as to review their China strategy at the headquarters.

  • Mitigations – In response to these more regional Covid disruptions as well as the more structural geopolitical challenges, companies are now generally treading more carefully. To mitigate the most pressing issues, some resort to cutting their headcount, increasing their safety stocks and are looking for alternative transport solutions and a more diversified supplier base. China is clearly becoming less attractive as a business location for most, and between 20% to 25% have decided to put some of their planned investments in the country on hold due to the policy uncertainty. While the number of companies planning to relocate operations abroad remains relatively small across all surveys, the trend is on an upward trajectory, with already 23% of European companies considering such moves in the latest EUCCC survey conducted in late April, more than double the number from two months earlier.


bottom of page