British businesses are girding for new disruptions caused by an expected surge in coronavirus infections after an overhaul of China’s “zero-Covid” policy, British Chamber of Commerce Chairman Julian MacCormac said Thursday at the launch of the group’s fifth annual sentiment survey.
It comes a day after China announced a new 10-point plan to ease virus restrictions including lifting testing requirements for domestic travelers and allowing those who fall sick to quarantine at home in most circumstances, rather than in centralized facilities.
“The measures absolutely are very welcomed and that’s really what members have been calling for,” MacCormac said during a media briefing for the survey. “We are making a transition into an environment where restrictions may be less extreme.”
The launch of the British Business in China: Sentiment Survey, which was held entirely online, found that an increasing number of firms represented by the Chamber were pessimistic about their 2023 business outlook at the time they were polled from Oct. 12 to Nov. 4.
With the latest easing of Covid curbs, MacCormac said it was too early to tell whether the changes would significantly change business sentiment. Confidence comes from predictability, which has been in deficit this year, he said.
MacCormac added that 2023 will bring new challenges to businesses such as the rising risk of Covid infections among staff, and a major concern for British companies is the length of time needed for a stable transition to living with Covid.
Policymakers will also have to ensure the health care system remains stable even as infections surge, he said.
Key findings
The poll gathered feedback from 292 U.K. firms operating in China, or around two thirds of the companies it represents. It found that 42% of respondents were pessimistic about the business outlook for 2023, up 33 percentage points on the previous year which was defined by Covid-19 controls hampering business operations.
Hiring foreign staff was their top challenge, especially for small and midsize businesses, amid the uncertainty stemming from cross-border travel restrictions that remain in place. Recent changes only reduced the length of time international visitors must spend in government quarantine from seven days to five, followed by another three days in home isolation.
The relationship between some U.K. firms’ global headquarters and their China offices have been weakened by the impact of such restrictions on talent recruitment and business travel, said Alexandra Hirst, a senior policy analyst at the British Chamber. Only a quarter of firms said they can recruit the international talent they need.
“What I think is more concerning is that where we have this difficulty in communicating, understanding and connecting across borders, we also run the risk of global headquarters turning their focus to markets where they have a stronger connection or they feel it is easier to operate,” Hirst said.
Transparency of the business environment and market access barriers are other major concerns with 31% of respondents saying they have experienced some form of impediment to market access, up from 23% in the 2021 survey.
Multinational corporations in China are also dealing with the challenge of navigating changing cybersecurity and data regulations. Many British businesses reported difficulties understanding requirements for cross-border data transfers over the past year, and about 24% of respondents complained about increasing difficulty in accessing online resources located outside the Chinese mainland, according to the report.
About 18% of polled firms said they plan to decrease investment on the Chinese mainland, up from 7% in the previous year. About 13% of small and midsize firms are considering exiting China, compared with just 2% of big multinationals, the survey shows.
Greater clarity
Despite higher infection risks, China’s relaxing of Covid rules could mean some measure of clarity for foreign businesses about what the future will look like, Chamber officials said Thursday.
“The hope is that if that certainty and clarity can be given about what it will look like as we ride this wave of a new normal… business operations will eventually be able to (go) back to normal,” said Hirst.
But the road to full reopening may still be slow, painful and bumpy, and the long delays may come with a high price, economists at Nomura Holdings Inc. wrote in a Thursday note.
“Despite the substantial resources devoted to the heavy-handed zero-Covid strategy over the past two years, China does not appear to be well prepared for a massive wave of Covid infections,” the analysts, led by Lu Ting, wrote.
Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editors Bertrand Teo (bertrandteo@caixin.com) and Flynn Murphy (flynnmurphy@caixin.com)
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