Covid Restrictions Are Top Problem for U.S. Firms in China. That’s Not the Only Headache, According to a New Survey.

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American businesses in China cited a range of issues that challenge their business, according to a new survey. Here: cargo containers stacked at a port in Lianyungang in China’s eastern Jiangsu province.

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AFP via Getty Images

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Though Covid-19 restrictions remain the overwhelming burden to American businesses in China, a range of other obstacles continues to pose challenges to their operations in the country, according to a new report.

Those include market access restrictions, uneven or discriminatory regulations, and intrusive cybersecurity requirements, according to the report by the American Chamber of Commerce in China.

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Part of the focus on non-Covid-related issues stems from the fact that it largely surveyed member companies in March, before China’s latest outbreak and subsequent lockdowns stepped into high gear.

Because of those draconian policies, the chamber conducted last week a separate flash survey that found significant negativity among US firms. In that survey, roughly half said foreign workers are very unlikely or outright refusing to relocate because of travel restrictions. More than half of firms said they are pausing or decreasing planned investments in China.

But the latest report looked at a much broader range of issues, sectors, and business sentiment. The 24th annual “American Business in China White Paper”—this year running 600 pages and co-drafted by more than 100 US firms—is a closely read gauge of foreign business sentiment in the world’s second largest economy.

Ongoing tussling between the various foreign chambers of commerce and the Chinese government has boiled over in recent months, as the Shanghai lockdown shocked observers by its length and protracted shuttering of the megacity. The chambers, and some consul generals in the city, have sent letters to top Chinese leaders pleading for relaxation of business and travel restrictions.

Last month, representatives from the European, Japanese, South Korean, UK, and US chambers met with Chinese commerce minister Wang Wentao. The business groups publicly described the meeting as cordial, with China promising to help resolve supply-chain issues but reiterating that its strict zero-Covid policy—and the implicit restrictions on travel within and into China—was not up for negotiation.

Yet while Covid measures have begun to erode China’s attractiveness, it remains a top market priority for nearly two-thirds of companies surveyed. Other areas of optimism or cooperation included joint sustainability and climate advocacy, the reform of some financial service restrictions such as ownership or equity caps, the increasing adaptability of firms after years navigating the China market, and a bump in 2021 profitability.

There were slight upticks in firms’ revenue and profits last year, yet many said those increases were nevertheless muted by Covid policies, particularly for consumer-sector firms with bricks-and-mortar stores.

One problem weighing on the minds of the foreign business community is that, even with Covid-19 cases falling, unwinding adverse business effects will be a slow and tedious process, according to American chamber president, Michael Hart.

“Unfortunately, the Covid lockdown this year and the restrictions for the last two years are going to mean three, four, five years from now, we will see investment decline,” Hart said.

“For years and years, American companies and other companies have said, ‘Is there an alternative to producing in China’?” he said. But despite the myriad headaches operating in the country, the benefits—such as advanced logistics and the size and strength of the workforce—have long outweighed the drawbacks. But now, with Covid-policy interruptions reaching fever pitch, foreign firms are raising the question more seriously.

“For global manufacturing and global supply chains, it’s China’s opportunity to make it or to lose it,” Hart said.

Chair of the chamber’s policy committee, Lester Ross, followed those comments by noting a trend that touches on nearly all of the issues American firms have about in China.

“There is a buzzword that is increasingly spoken of in the United States and business circles, and that is ‘friend-shoring’”—alongside the traditional onshoring, or bringing company operations back home.

“That is, going to countries, or at least shipping part of your supply chain, to countries that are friendlier to the United States than China [is],” Ross said.

The report, though not all doom and gloom, concluded on a somber note. Roughly 60% of US firms have already decreased revenue projections for 2022, and the same amount reported supply chain disruptions due to transportation and shipping issues.

“Most worryingly, members don’t see any light at the end of the tunnel,” it said.

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Credit: www.marketwatch.com /

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