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Foreign firms brace for turmoil in China

Foreign firms in China are bracing for months of turmoil as the world’s second-largest economy flatlines following the coronavirus epidemic.

Four major surveys highlighted the challenges ahead as the death toll from the Covid-19 outbreak climbed past 3,100 with close to 91,000 people infected worldwide.

“The patchwork of conflicting rules that emerged from the fight against [the virus] has produced hundreds of fiefdoms, making it next to impossible to move goods or people across China. While virus containment is the most important task, standardizing measures across larger jurisdictions should also be prioritized to get the real economy back on its feet,” Jorg Wuttke, the president of the European Union Chamber of Commerce in China, said in a report released last week.

More than 570 EU companies, including firms affiliated to the German Chamber of Commerce, were polled with nearly half predicting a double-digit drop in revenues for the first half of the year.

Key findings showed: 

  • Up to 50% of those surveyed planned to lower annual business targets. 
  • Major challenges include unpredictable rules, highly restrictive quarantine demands and extensive preconditions to restart operations.
  • Half of the respondents face inconsistent rules applied across different jurisdictions and at different levels of government, which can frequently change, often at short notice.

“China finds itself performing a precarious balancing act with two important but divergent tasks: keeping firm with virus prevention measures while fighting for a return to economic normalcy. This will require the Chinese Government to release supporting measures for those most affected – especially SMEs [small- and medium-sized enterprises] – until operations normalize,” Stephan Woellenstein, the chairman of the German Chamber of Commerce in North China, said.

A study from the American Chamber of Commerce in Beijing also painted a bleak picture, lacking in bright primary colors.

Nearly a third of companies from the United States are facing increased costs and shrinking revenues as a result of the outbreak, which started three months ago in Wuhan, the capital of Hubei province.

The survey of 169 businesses showed that 10% of those polled estimated that losses would be at least 500,000 yuan, or US$71,400, a day.

“AmCham China member companies, like much of society here, face a large number of uncertainties. There is, in the short term, a clear and significant negative impact on member company operations, through travel disruptions, reduced staff productivity, increased costs, significant drops in revenue, and more. But, for most of our members, it is still too early to tell how significant the long-term impact will be,” Greg Gilligan, the chairman of the American Chamber of Commerce in Beijing, said last week.

A report by the British Chambers of Commerce was just as gloomy. Nearly half of the 135 companies in the study expected revenue for 2020 to fall by at least 10% with more than a quarter forecasting a 20% decline.

“Effective communication and transparency from the [Chinese] government are necessary to ensure companies can resume production as efficiently as possible,” the survey stated.

Indeed, that is the trillion-dollar question.


AF China Bond