COVID-19 News

China will open again, but old pain points remain

After an unprecedented lockdown, which largely paralyzed business for at least two months, the Chinese economy is recovering. Nevertheless, European companies in China say that there is still little reason for jubilation. “It is still complicated to get people back to China, hire new staff or fly experts in,” said Vice President Charlotte Roule of the European Union Chamber of Commerce. “As long as that is the case, it is not yet business as usual.”

In the first quarter, the Chinese economy contracted by 6.8 per cent, a direct result of a series of measures to curb the spread of the new coronavirus. That time is over the lobby club notes. “In February, companies anticipated a longer than usual New Year’s holiday, a global pandemic was not foreseen at the time,” said Roule from her Beijing office via Zoom. “For most companies, the industry has now started again.”

However, she notes that several sectors are still facing constraints, which in some cases make it difficult to fully resume production. “When you produce cars, you want to make sure you have brake discs. If your supplier is unable to supply, your factory may run normally but you still have a problem. It still happens. “

Concerns about lack of state-owned enterprise reforms

The Chamber of Commerce notes in the annual survey that larger companies have emerged from the crisis more easily than small and medium-sized enterprises. 44 per cent of European companies complain that their local partner companies find it difficult or impossible to find money, where the financing tap for state-owned companies is wide open. “That makes them bigger, better, stronger, ” says Roule.

Beijing previously promised to reduce the weight of state-owned companies and to make room for the private sector. Roule: “We are very concerned that the government will again rely heavily on these state-owned companies during this corona outbreak, while we want to see reforms there.” State-owned companies are seen by Beijing as strategic pawns, among other things, in order to guarantee employment.

The survey, which surveyed over 600 companies, was conducted in February. At that time, the severity of the corona outbreak was not yet clear to most companies. European companies then expressed particular concern about the slowdown in economic growth in China, the trade war with the United States and the slowdown in the world economy. 44 per cent of companies still report a loss of turnover due to restrictions in market access. “With Covid-19, those pre-existing challenges have only increased,” said Roule.

Leaving China is not an option for most companies

Since the outbreak of Sars in 2003, the interconnectedness of the Chinese economy with the rest of the world has increased significantly. China is now responsible for around 19 per cent of global exports, up from 8 per cent back then. Trade tariffs with America and the restrictions caused by the corona pandemic have exposed its vulnerability.

Yet only 11 per cent of European companies are considering shifting investments to other countries, similar to previous years. “Where low-skilled labour is used, that process can proceed quickly,” says Roule. “But for most companies, they are here in China for the Chinese market.”

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