'Huge Uncertainty' For EU Firms Over China's Covid Curbs, Chamber Warns

Many European firms are rethinking their investments in China because of its strict Covid controls, a top business group said Monday, warning that disruptions had pummelled operations.

While the rest of the world has steadily removed coronavirus curbs, China has remained committed to its zero-Covid strategy, using lockdowns and mass testing to stamp out all infections.

But this strategy has hammered businesses and snarled supply chains -- 60 percent of respondents in a survey of European businesses said it has become harder to do business in China, in large part due to Covid controls.

"We hope that China is really waking up," Bettina Schoen-Behanzin, vice president of the European Union Chamber of Commerce in China, told AFP.

"(We hope) that they find a way to get out of this zero-tolerance Covid strategy because it causes huge uncertainty and this is for sure not good for investment."

The chamber conducted the survey on over 600 member firms in February and March just as strict lockdowns were imposed in several areas to control China's worst Covid outbreak in two years -- from business hub Shanghai to the northern breadbasket province of Jilin.

The body also did a follow-up in April to assess the impact of the lockdowns and the Russian invasion of Ukraine.

It found that 92 percent of member companies were hit by supply chain problems, and three-quarters said their operations were negatively impacted by the Covid controls.

Further, 60 percent of respondents said in April that they had lowered their 2022 revenue projections.

The Ukraine war also impacted confidence -- a third of the firms surveyed cited geopolitical tensions as a reason for the Chinese market becoming less attractive.

"The role China played over the last two years in bolstering European companies' global revenues looks set to diminish," the report released on Monday said.

"And recent events have led many to question just how many eggs they are willing to keep in their China basket."

The Covid containment measures also hampered European firms' ability to recruit international and local talent, the chamber said.

Its annual survey found that 58 percent of companies faced difficulties in recruiting international and local talent, pointing to the Covid controls and "a wealth of ever-changing visa and work permit procedures and extreme limitations on travel in and out of China".

China is the world's second-biggest economy with a huge market, however, making it difficult for firms to walk away.

"Companies, businesses are not leaving China, because the market is too big, the market is too important, and there are for sure many growth opportunities ahead," Schoen-Behanzin told AFP.

"But they are localising, they are onshoring, and they are rethinking their footprint in China, in Asia," she added.

"They are shifting, especially future investments."

However, if the Covid restrictions drag on for another year, companies could start to feel even more pain.

"The world does not wait for China," Schoen-Behanzin said.

"If there is no change, then definitely companies will start to think about backup plans and they obviously would go into other markets."