May 20, 2022

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US companies in China cut revenue forecasts and investment plans

US companies in China cut revenue forecasts and investment plans

Truck drivers, such as the one pictured here in Shanghai in late April, usually need to show valid negative virus tests in order to move goods between cities in China. The American Chamber of Commerce in China said members reported different implementation of Covid controls depending on city and county.

Vcg | China Optical Group | Getty Images

BEIJING – A new study finds that more US companies in China are lowering revenue expectations and future investment plans as Covid controls continue.

Between late March and late April, the proportion of respondents reporting the impact of Covid restrictions rose 4 percentage points to 58%, according to a survey by the American Chamber of Commerce in China released Monday.

While that’s not a huge increase, 4 or 5 percentage points each month could be “very significant” if Covid controls continue for another five months, Michael Hart, president of AmCham, told CNBC in a phone interview.

When asked what impact the Covid restrictions will have if they continue for the next year, more than 70% of survey respondents said Revenue or profits will be reduced.

The latest study, conducted from April 29 to May 5, covered 121 companies operating in China. That time period included The latest Covid restrictions in the capital, Beijing.

Two, three, four years from now, I expect a huge drop in investment in China because there are no new projects underway, because people can’t come and look into the space.

Michael Hart

President of AmCham China

Pre-scan With AmCham Shanghai in late March, just like Shanghai’s original two-part lockdown plan they started. These procedures lasted much longer than the first week.

In the past few days, the city of Beijing has postponed the reopening of schools until further notice, ordering all non-essential businesses in a major business district to close temporarily or have their employees work from home.

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“There are very few aspects of the economy that appear to be working,” said one of the respondents to the report, who withheld the respondent’s name and location. “[While] COVID-19 restrictions can be managed, what [will be increasingly difficult to] A management lacking overall growth of the economy and what appears to be a growing economic headwind.”

Companies cut off Chinese investment plans

The AmCham survey found that prolonged Covid controls – as mainland China deals with the worst outbreak of the virus since early 2020 – have further discouraged US companies from investing in the country.

The percentage of respondents reporting lower investments as a result of the recent outbreak and restrictions increased to 26% from 17% in the previous month.

Those reporting a delay in investments fell slightly to 26%, down from 29% in the previous survey. The share of those who said it was too early to predict or not make a decision about the impact on investment plans rose to 44% in the latest survey, up from 30% in the previous study.

Official figures show a steady increase in foreign direct investment from all countries into China, up 31.7% year-on-year in the first quarter to $59.01 billion.

China’s Ministry of Commerce had no comment prior to its regular press conference on Thursday. In response to a question in late April about the challenges of foreign companies, the ministry said it would make every effort to ensure work and production could resume.

Since China tightened border restrictions in 2020 to control the transmission of Covid from travelers into the country, Foreign trade organizations said it is difficult to recruit staff. This is due to a lack of international flights to China and quarantine times on arrival of at least two weeks, if not longer.

“If you want to invest you have to allow travel,” Hart said, noting that the effect would be felt in the long run.

“Two, three or four years from now I expect a huge drop in investment in China because there are no new projects being worked on, because people can’t come and look into the space,” he said.

If Covid controls continue for the next year, 53% of respondents in the latest AmCham poll said they would reduce investment in China.

Read more about China from CNBC Pro

By industry, technology and research and development companies have reported the biggest impact of Covid controls on their investment plans, with 53% of those surveyed in the sector anticipating delays or cutbacks.

On the other hand, only consumer companies reported plans to increase investment, albeit only 4% of members in the sector. For the industry, 36% planned to reduce investment, while 29% said they would delay investment as a result of the recent outbreak.

The consumer sector was also the only one to report some increase in annual revenue expectations despite the impact of Covid, at 3% of respondents. However, the majority of consumer companies, or 69%, said they had lowered revenue forecasts for this year.

Work has not been fully resumed

Just based on our companies’ experience in the US, Europe and other markets, we’ve seen that other countries have taken a different strategy. We are just asking for more balance.

Michael Hart

President of AmCham China

Part of the difficulty, Hart said, is the inconsistent implementation across provinces and cities of what China calls its “dynamic non-proliferation” policy.

Locally, “Government officials are looking for practical ways for companies to solve their problems and get back to work, because these people are judged by economic performance,” Hart said. “When we talk to the government in [a] High level, he is not focused on economics. It is a focus on health and the reduction of Covid.”

“Based on the experience of our companies in the US, Europe and other markets, we have seen that other countries have taken a different strategy,” he said. “We’re just asking for more balance.”

Last week, the Chinese president Xi Jinping led a meeting emphasized on The country must “fight resolutely” against all questions about anti-virus policies. The meeting also warned of the economic consequences if China does not adhere to its dynamic policy of non-proliferation of COVID-19 virus.

In November, The Chinese Center for Disease Control and Prevention published a study who warned that switching to a “coexistence” strategy in other countries would likely result in hundreds of thousands of daily cases – destroying the national medical system.

On Monday, mainland China reported 349 new asymptomatic COVID-19 cases and 3,077 asymptomatic cases, most of them in Shanghai — which has recorded six deaths a day.