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Can CCP Revive Confidence Among Foreign Companies?

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On June 9, 2022, Tesla Inc. (TSLA) canceled three live job hiring events for China, which were originally scheduled for this month, after the Shanghai government had already held two video roundtable talks for foreign companies in Early June; the second of which included executives from six foreign auto enterprises, including Tesla.

Telsa did not explain why they had canceled the three job hiring fairs, but nothing could stop speculations as to whether Tesla might be considering cutting back on their investment plans in China.

People are also wondering whether roundtable talks, which catered for foreign enterprises, would play much of a significant role in stabilizing foreign investments. Although Jiefang Daily, a Shanghai government-backed newspaper, claimed that foreign executives expressed “their full confidence in the future of Shanghai and China,” during the roundtable conference.

Foreign companies had contributed around 20 percent of job opportunities in Shanghai. By the end of 2021, the number of regional headquarters of multinational companies in Shanghai had reached 831, as well as 506 research and development centers. However, after more than two months of lockdowns, many corporations have decided to evacuate China.

According to a Chinese media NetEase, U.S. semiconductor supplier ONSEMI (NASDAQ: ON) announced the closure of its global distribution center in Shanghai in April 2022; the relocation of its related operations will be moved to Singapore.

Hong Kong’s Ming Pao also reported on April 17, 2022, that Shuichi Akamatsu, Consul General of Japan in Shanghai, had written to the vice mayor of Shanghai about the disruptions to Japanese enterprises’ economic activities caused by the city’s harsh pandemic prevention policies. Those corporations might not have a choice but to transfer production and manufacturing to other countries and regions.

Although all enterprises have been allowed to resume work since June 1, their operations are still impacted by the normalized COVID-19 prevention policies.

Workers were required to show a 72-hour (NATTs) nucleic acid reports before they could take public transport. Some people were still in quarantine and couldn’t return to work at all.

“We’re back to work, but we haven’t reached our normal capacity. Workers are not all there yet,” a production manager said helplessly in an internal meeting.

China’s strict zero-Covid Policy has seriously affected the business environment in China. It has also awoken foreign investors as to what they face in China: tremendous uncertainties, high level policy and regulatory risks.

Managers cannot tell when their employees would be pushed into isolation facilities again, or whether there might be another harsh lockdown in the near term, making it difficult to set firm or realistic operation and investments plans.

The British Chamber of Commerce in China expressed on May 31, that uncertainty has dented confidence. In a survey conducted with more than 600 members, 74 percent of companies said they were “severely impacted” by China’s zero-Covid policy, while nearly half of them had delayed their investment plans, according to Voice of America (VOA).

Another survey released by the American Chamber of Commerce in China on May 9, revealed similar results. Around 52 percent of companies said they had postponed or reduced their investments in China.

If companies postpone their investments, the new jobs that would come with those investments would also be postponed. If companies leave China, jobs will follow. Once businesses withdraw from China, it is highly unlikely they will return anytime soon. This implies a medium-to-long-term, rather than a short-term impact on the unemployment rate. Naturally, this would affect people’s income, consumption, and their ability to service mortgage and other debts.

Defaults of mortgage and other debts would jeopardize the property and banking sector, posing significant risk to the financial system.

The uemployment rate surged to 6.1 percent in April 2022, the highest since March 2020. The unemployment rate of young people aged between 16 and 24 reached to a record-high level of 18.2 percent, according to National Bureau of Statistics of China (NBS). Consumption fell by 11.3 percent year-on-year in April 2022, after a drop of 3.5 percent in March. Property sales also dropped by 29.5 percent with weak market sentiment in the first four months of 2022.

China’s factory activities have contracted for three consecutive months. The Purchasing Managers’ Index (PMI), an index of the prevailing direction of economic trends in manufacturing, were below 50% from March to May 2022.

PMI is compiled and released monthly. A PMI above 50 represents an expansion compared with the previous month, whereas a PMI below 50 represents a contraction. China’s PMI rose to 48.4 percent in May 2022, from 42.7 percent in April. However, this does not suggest an improved prosperity, as what NBS stated in their press release. The truth is the economy contracted further in May.

The outbreak of coronavirus during early 2020 did not dampen market confidence. Most companies indicated a strong recovery after the pandemic in the conferences with analysts.

However, it is a totally different story in 2022. The management of most companies said in the analyst survey: it’s difficult to reach output targets, due to too many uncertainties.

Ms. Liu (pseudonym), a senior manager of a foreign company in Shanghai, said she walked into the open air for the first time on June 1, after being isolated at home for two months. She took a photo of the empty street and posted it on her social media. She wrote, “Shanghai cannot recover to its golden days in the past. There is no going back.”

Kate Jiang

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Kate Jiang is a financial analyst and an Epoch Times contributor based in Hong Kong.



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