Foreign Businesses Consider Leaving China Amid Lockdowns

Chris Mei has been stuck in his Shanghai flat for a month save for PCR testing and occasional volunteer work delivering food to neighbors. That will change in a couple of days when he boards his flight for a long-scheduled trip home to Portland, Oregon.

He uses Zoom to do factory inspections for his 2-year-old import-export firm, Shanghai Fanyi Industry, but he can’t complete all the orders for clients overseas. He’s locked down like most of the 26 million people in the city, along with some of the factories where he normally sources goods, such as artificial plants and solar lights.

“In terms of how’s business, it’s definitely affected us,” Mei said. “Clients abroad always have deadlines, especially for some of our products.” He continued, “For example, for a shipment that recently went out, we had a portion of the order canceled due to the fact that the factory, they were on lockdown as well, so we basically could only produce what they could, and then the remaining part of the order basically passed the client’s deadline in South America.”

Leaving a city in lockdown has become an expensive, multistep process. Mei, a U.S. citizen, applied for permission to leave Shanghai by getting a pass from his neighborhood committee. He then found a driver with special permission to take him to the airport during lockdown – for about six times the usual price of that ride.

Shanghai’s residents have been ordered to stay home since early April in response to a spike in COVID-19 infections. Last week, authorities began easing restrictions in parts of the city to restore economic activity.

Mei’s case is typical, analysts who follow China say. Large numbers of foreign businesspeople in China are planning on leaving the country, for now or for good. The lockdowns have hammered an economy already hobbled by the 4-year-old Sino-U.S. trade dispute, capital outflows and last year’s crackdown on tech giants.

On March 18, That’s Shanghai, a local magazine, reported the results of an online survey saying 85% of foreigners in the city would “rethink their future in China” because of the lockdowns. The survey found that 48% of respondents plan to leave China over the next year and that 37% would wait in case anti-pandemic measures improve.

Risk seems to be increasing

Shipments through seaports in Shanghai and the Chinese tech hub Shenzhen, which locked down in March, have slowed because of a lack of workers and a shortage of truckers who are allowed to move imports and exports around the country.

Larger businesses can afford to wait in case lockdowns ease and China resumes its robust economic growth, said Doug Barry, communications vice president with the U.S.-China Business Council, a 265-member advocacy group in Washington.

Smaller companies are having more trouble because they depend on China’s advanced contract manufacturing ecosystem and cannot easily relocate, Barry said. He said some businesses have closed temporarily because so many workers can’t report to their jobs.

Others have spent money to help feed workers and even let them stay overnight at workplaces so they can report to their jobs the next day.

Overseas-based company leaders are staying away from their China projects because of quarantine rules, he said.

“Business in some cases has come to a complete stop,” Barry said. “The risk seems to be increasing, and the unknowns are also increasing and you’re looking at bottom lines and the future of things, and you’re wondering what to do.”

While foreign businesspeople are thinking of leaving, the significance of China to outside companies can be seen in the numbers. Foreign businesses invested $173.5 billion in China last year, up from $163 billion in 2020 and $140 billion a year earlier, according to the United Nations Conference on Trade and Development’s latest report.

Just more than 1 million foreign companies were registered in China at the end of 2020.

Companies normally relocate in China for contract manufacturing – which is seen as professional yet inexpensive – or to sell cars, coffee, phones and fashion apparel to the massive consumer market.

Incentives to stay

Mei will be back in Shanghai after a couple of months at home. By then, he expects there will be a “more solid” response to COVID-19 with clarity about people’s mobility.

Some people he knows have been called back to work in May, he said.

William Frazier, a 58-year-old U.S.-born owner of a business advisory firm in Shanghai, has lived in the city continuously since 2002.  He has no plans to leave the city even though he’s been locked down since March 16. Frazier has a spacious flat in a high-end compound, making life tolerable as he works though emails, phone and video conferences. The economic chaos has caused more clients to call him for information.

“No real significant impact, I would say, not for me,” Frazier said. “I don’t see hiccups. I see opportunities.”

Local officials in China want foreign investors to stay in the country, the U.S.-China Business Council has found. They are willing to meet and hear out American businesspeople, Barry said, though no government body has offered them any economic stimulus.

Sticking around will keep companies competitive after China returns to normal, he said.

If lockdowns in Shanghai end in May, more businesspeople are likely to stay in the city, said Yan Liang, professor and chair of economics at Willamette University in Salem, Oregon. Local and central government policymakers have the economic aftershocks of COVID-19 “on their radar,” she said.

“It’s just so important to be able to have a foothold in a large market like this,” Liang said. “And I think some of the sentiments (are) also that even though there are some maybe temporary or maybe more permanent slowdowns, the Chinese economy is still a really bright spot when you compare with other countries in the world.”

That makes the lure of the largest market in the world worth waiting for, for businesses that can afford to hold out until cities open again.



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