COVID-19: US, European companies in China still face challenges in getting back to work

Employees work on the production line of high-precision sheet aluminium at a factory of Shandong Weiqiao Pioneering Group Company Limited on November 23, 2019 in Zouping, Shandong Province of China.

Tang Ke | VCG via Getty Images

BEIJING — Surveys of foreign businesses released this week indicate many people in China still haven’t returned to work, especially in factories, adding to revenue losses.

The coronavirus, which has killed more than 2,700 people in the country, forced more than half of the world’s second-largest economy to extend a shutdown for the Lunar New Year holiday by at least a week. However, in an effort to limit COVID-19’s spread, authorities have discouraged people from gathering. Cities like Beijing have also imposed 14-day quarantines for those returning from other parts of the country.

Travel disruptions to the flow of people and goods are a top challenge for foreign companies in China right now, Greg Gilligan, chairman of the Beijing-based American Chamber of Commerce in China, said in a phone interview Friday. “There’s still a very large number of people who are still sheltered in place and cannot return to their (city) of residence.”

Most of the 169 member companies that responded to the chamber’s survey last week said it’s too early to tell how much the delays cost, but about 10% estimated the losses are at least 500,000 yuan ($71,400) a day.

Here’s what businesses told three chambers of commerce in surveys conducted last week:

AmCham — 169 respondents

If their business can’t return to normal by April 30, nearly half expect China revenues for the year to decrease.
If the virus lasts through Aug. 30, nearly one-fifth of respondents expect 2020 revenues to fall more than 50%.

German Chamber of Commerce in China and the European Union Chamber of Commerce in China — 577 respondents

Nearly half forecast a double-digit drop in revenues for the first half of 2020.
A quarter expect to see a drop of over 20%.

British Chambers of Commerce in China — 135 respondents

Half expect China revenue for the year to drop by more than 10% as a direct result of the virus.
More than a quarter expect a decline of more than 20%.

Chinese officials say work is resuming gradually

Chinese authorities also painted a mixed picture of the return to work in official announcements this week.

Official figures for major companies and essential industries such as food processing indicate a high level of return to work. But overall, many businesses are still struggling.

As of Wednesday, the Ministry of Industry and Information Technology said its research for medium- and small-sized enterprises showed:

Overall, 32.8% had resumed work, up 3.2 percentage points from Sunday.

For smaller manufacturing businesses, 43.1% had returned to work, up 6.2 percentage points from Sunday.

For seven unnamed provinces and regions in China, the resumption of work rate was at least 40%.

On Tuesday, the Ministry of Transport disclosed the resumption of work rate for major transit construction projects was at best about 50%, and only around 25.9% for civil aviation airports.

Coal power consumption nationwide, as measured by six major power generation groups, increased more slowly in the past week than the week before, to 60% from that before the Lunar New Year holiday, Morgan Stanley analysts said in a note Friday.

Divergence across China

However, the resumption of work clearly varies by region.

The EU Chamber said in a call with media Thursday that for members in Shenyang, the capital of Liaoning province in northeastern China, “things are nearly back to normal.” In the municipality of Chongqing, which borders the virus’s epicenter of Hubei, “companies are still dealing with huge administrative hurdles.”

Ultimately, foreign businesses are hopeful that Chinese authorities’ increased emphasis on economic growth will help resolve these challenges soon.

The central government has announced a slew of measures in the last two weeks to lower loan rates, waive or cut certain taxes and social insurance contribution plans, and generally improve financing to smaller and medium-sized enterprises.

While those are helpful, what’s more important for businesses is generating revenue and having immediate cash flow, said AmCham’s Gilligan.

“We are still very hopeful those economic reform measures will continue,” he said. He noted that in informal discussions with various ministries and agencies, it seems “the motivation is quite high given the challenges to the economy.”

Amid drawn out tensions between the U.S. and China over trade and business practices, a new foreign investment law took effect in January that seeks to address intellectual property protection and other longstanding complaints. This year, China is also allowing more foreign ownership in local financial institutions.

Chinese consumer market is key

Ultimately, the priority is access to the world’s second-largest economy. Foreign companies such as Starbucks and Adidas have warned about the negative impact of disruptions to their operations and sales in China.

“The (foreign investment law) is not going to make our head offices more excited,” European Chamber President Joerg Wuttke said Thursday. “More assurances, implementation is key.”

“What lures companies to do business in China is the demand side, not really the laws,” he said, noting what’s key for businesses is how Chinese consumers react to the virus.

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