China Direct

China Policy Analysis - December 2022 Review

Please review the latest policy insights from Philippa Jones and the team at CHINA POLICY as they review a tumultuous and fast moving December.

China Policy December 2022 Review

Our grateful thanks to China Policy for sharing this analysis.

 

Stop Press: British Business in China: 2022 Sentiment Survey

 

 

The 2022-2023 edition of the British Chamber of Commerce in China's British Business in China: Sentiment Survey has been released today, shedding light on the outlook and perspective of almost 300 UK companies in the Chinese mainland. 

Our survey found that COVID-19 controls are hampering business operations and have had a significant negative effect on the sentiment of British businesses operating in China in 2022. After a third year of COVID controls, business pessimism in China is at a record high. Employing foreign staff remains the top challenge facing UK companies in China, hampering relationships between global headquarters and China offices. Continued uncertainty and ongoing unpredictability in the business environment has shaken UK investor confidence. 

The British chambers of commerce in China call for a clear path to a more stable and predictable business environment, implemented consistently and clearly across all levels of government so that businesses can plan with greater certainty and less disruption.

Businesses report being constrained by market access barriers, coupled with some market closings and feeling less welcome in the market. The survey also shows a substantial drop in the ability for companies to recruit enough of the talent they need, which is having an impact on relationships between global headquarters and China offices.

Despite a spate of new measures being rolled out over the past two weeks aimed at relaxing COVID-19 control measures, uncertainty remains as to what the implementation of these measures will mean in reality given many of these are still in the process of taking effect.

The top three regulatory challenges facing British businesses in 2022-23 are:

1. Employing foreign staff
2. Transparency of the business environment
3. Navigating cybersecurity and IT regulations

To access the Survey please click here.

Our thanks to the British Chamber of Commerce China for kindly sharing this essential report.

Xi's China risks losing its middle class - Kerry Brown

 

 

China is continuing with its tough zero-COVID policy. But the cracks in the economy and a discontented middle class mean that Xi’s Imperial-like governing style is under challenge, writes Kerry Brown.

China’s zero Covid strategy operates in Chinese domestic politics a bit like Brexit does in the UK. Despite complaints from business networks and broader society about the negative impact on economic growth and citizens’ freedoms,  it’s a policy commitment the government is sticking to no matter what.

Of course, no one voted for the draconian lockdowns implemented across China. And, unlike Brexit, the lockdowns are very much in line with expert advice in the country, rather than running against it. The Chinese Centre for Disease Control and Prevention (CCDC), the main governmental body advising the government over crisis response in this area, said in a weekly update last November that without comprehensive restraints on people’s movement and quarantines on anyone testing positive for the virus, the national health system would soon be overwhelmed with cases, and find itself in the same bind as those in the US or Europe did.

That the words of the experts have been taken so much in earnest is striking for a regime that previously hasn’t been shy to dismiss them. The Xi leadership may be confident in the way it speaks to the outside world, but it seems that it has the same profound wariness in the robustness of the country’s public health as everywhere else. Things have not been helped by clinical trials showing the Chinese vaccines – the only ones accepted in China – are not as effective as foreign ones where the length of protection is in question). On top of this, vaccine take-up by the elderly, the most vulnerable group, has been poor. It is easy to see therefore why the central government might be very cautious. What is harder to understand, however, is why the cautiousness has bordered on obsessiveness.

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The Xi way of governing is increasingly almost imperial in style, with broad, high-level policy announcements made in Beijing, sometimes of almost Delphic succinctness.

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One scenario is simply about the structures of decision-making in China. This was an issue right from the moment the variant started to appear in late 2019, and local officials in Wuhan stood accused of trying to hush the issue up, delaying reporting to the central authorities till things had already gone on too long. As a result of this, in February 2020 key officials in the city were sacked. But this is unlikely to change the fact that provincial officials are very risk averse under Xi, and that any central direction to manage the pandemic will be interpreted in the purest terms and executed to the letter.

This explains the completeness of the Xian government’s virtual incarceration of its 8 million population after just a few COVID cases at the end of 2021, the first of the more recent lockdowns.  It also explains why the traditionally more free-thinking municipal authority of Shanghai and its similarly liberal approach was fiercely knocked back by Beijing last February, to make an example for any other provinces thinking of going their own way. The absolute prohibition on people moving from their homes there, in one of the most dynamic and lively cities of modern China modern, was perfect proof that if the government could bring about this situation there, it could do it anywhere.

This case study also reveals some important things about the Xi way of governing. It is increasingly almost imperial in style, with broad, high-level policy announcements made in Beijing, sometimes of almost Delphic succinctness, which are then handed down to various levels of government to do as they will. Exactly how and when the discussion amongst Xi and his Politburo colleagues on the best response to COVID happened is unclear. In a world where almost every political system seems to leak incessantly, the Chinese one is unique in maintaining its opacity and secretiveness -  no mean achievement in the social media era.

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The Communist Party is very aware of how relatively small incidents can mount up and then generate overwhelming force. It itself coined the Chinese phrase 'a single spark can start a prairie fire'.

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Rumours of clashes between Xi and his premier Li Keqiang on the effectiveness of the current response remain just that – rumours, with precious little hard evidence to back them up. Who in the current imperial system might dare to speak from the ranks and say that policy must change is unclear. Scientists should deal in hard facts – but we all know that science is susceptible to politicization. Experts in China have to offer their expertise in a highly political context. A declaration that the current approach is not fit for purpose can easily be reinterpreted as an attempt to launch an indirect attack on the core leader. With an important Congress coming up later this year, at which Xi is expected to be appointed for another five years in power, sensitivities are even more intense than normal. It is little wonder that the COVID strategy status quo settled on last year has not shifted.

Things, however, may well change, and change quickly. China is moving into tricky economic territory. The impact of the pandemic on global supply chains, along with the various stresses domestically on the housing market, and productivity, have shrunk expectations for growth. A predicted 6% in the earlier part of the year now looks overly ambitious. There is a real possibility China might experience a recession. At a moment like this, the government, which after all operates as a constant crisis and risk management entity, might do what it does best and prompt rapid, and dramatic, changes.

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The handling of COVID19 might look like further proof that Chinese politics under Xi is repressive and zero-sum. But even in an autocratic state like the current People’s Republic, the pandemic will not leave politics unchanged.

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This doesn’t mean that China’s COVID19 bind gets any easier. Like the country’s serious demographic challenges, with a rapidly ageing population, the only thing the government will be picking an argument with is reality as it proceeds into the future. As with Europe and the US, being more liberal about facing COVID19 will involve accepting some of the harsh consequences – rising fatalities, particularly for the elderly and vulnerable, and health systems put under enormous stress.  In such a huge, complex country, and of enormous geopolitically importance, a misstep could easily lead to huge and unwanted consequences, generating discontent and triggering mass protests in a way reminiscent of 1989. The Communist Party is very aware of how relatively small incidents can mount up and then generate overwhelming force. It itself coined the Chinese phrase `a single spark can start a prairie fire’. One such spark – the introduction of Marxism into China in the 1910s – led to its gaining of power three decades later.  

The handling of COVID19 might look like further proof that Chinese politics under Xi is repressive and zero-sum. But I suspect that even in an autocratic state like the current People’s Republic, the pandemic will not leave politics unchanged.  In particular, the middle classes in cities like Shanghai have had their patience tested in recent months.  This is the key group for Xi, the heart of his new innovative, more self-dependent, higher-quality service sector workers in an urbanized economy. Their support remains crucial if Xi is able to steer China towards the moment when it hopes it will become the world’s largest economy. Policies to try to placate them by addressing imbalances, critical environmental issues and improving public health are likely to only increase. Delivery however will be key.

Faced with a potentially life-threatening infectious disease, the Party can throw out injunctions and claim it has been the victim of bad luck. But an ailing economy and no clear signs of the government knowing how to manage this will prove a toxic mixture for it.  Xi and his third term in office will be all about delivery. The question is whether, even with the formidable suite of powers he has, he can do this. Governing China has always been the ultimate political challenge. COVID 19 has made that even harder.

Kerry Brown

| Professor of Chinese Studies and Director of Lau China Institute, King's College London. He is the co-editor of the Journal of Current Chinese Affairs, and author of Xi: A Study in Power.

 With our sincere thanks to both Professor Kerry Brown and The Institute of Art and Ideas for kindly sharing this information.

China's economy continues to stutter post-lockdown - Macro Polo Insight

While the Covid-19 situation is looking up in Shanghai, the Chinese economy’s outlook is just the opposite. At this point, we are revising down China’s second-quarter growth to roughly 0%, with full-year growth of around 4%.

This downward revision is predicated on factors that were not present during the 2020 lockdown, making that period less apt of an analogy than we previously assumed. Because this time is different, the normalization of economic activity in Shanghai will not lead to the same V-shaped recovery in 2020.

The main differences are 1) stimulus has been much weaker in this round than in 2020; 2) this lockdown hit during what was already an economic down cycle as illustrated by consumer sentiment.

To read this article please visit the Macro Polo site here.

Our thanks to Song Houze of Macro Polo for kindly sharing his insights.

 

Dates for Diaries: China's return to uncertainty - MERICS Webinar 31.05.22 1600-1700 (SPORE)

 

China is experiencing turbulent times: Covid-19 lockdowns across many cities and provinces have sent the Chinese economy into a dramatic decline. Censors are having a hard time cleaning the Chinese internet from statements of public discontent and even rumors about political frictions. And as the war in Ukraine rages on, the Chinese leadership course of alignment with Moscow is putting a strain on relations with Europe and the US.

Instead of riding a smooth political path towards the all-important 20th Party Congress in November, Beijing is confronted with unprecedented uncertainties. Xi Jinping has long warned that the Communist Party must vigorously prepare for multiple crises. But could the current internal and external pressures lead to a perfect storm that is a serious challenge for the system’s resilience?

Join us for an analysis and discussion in light of our new Security & Risk Tracker* and a special edition of the MERICS China Essentials** with our MERICS experts:

Speakers:
Mikko Huotari, Executive Director at MERICS
Helena Legarda, Lead Analyst at MERICS
Nis Grünberg, Lead Analyst at MERICS
 
Moderator:
Bernhard Bartsch, Director External Relations at MERICS

This event is public. A recording of it will be available on YouTube. You can register here.

Our sincere thanks to the Mercator Institute for China Studies for kindly sharing this information.

What impact are new COVID-19 lockdowns having on British businesses in China?

 

The British chambers of Commerce in China conducted a survey on the impact of recent outbreaks of COVID-19 in China on our member companies. With over 200 respondents, from start-ups and SMEs to multinational corporations, this survey represents the views of British businesses in China operating across the country and in a variety of different industries.

Members told the Chamber that COVID-19 is affecting hiring talent, business operations, future investment, supply chains, and many more issues.

To download the full report please click below:

Download British-Business-in-China-Impact-of-COVID-19-on-business

Our thanks to the British Chambers of Commerce in China for kindly sharing this report.

International Business in China - impact of Covid and Ukraine

Beijing/Guangzhou/Shanghai, March 31, 2022 - With major Chinese cities in lockdown and an ongoing devastating war in Europe, German companies in China are increasingly anxious about their businesses, a flash survey conducted by the German Chamber of Commerce in China shows.

Due to the war in Ukraine, for over half of the responding companies, the current geopolitical crisis impacts their headquarters’ China strategy. One third of respondents are putting planned business or investments on hold. 46% of the responding companies currently see a decrease in the attractiveness of the Chinese market compared to other markets. The war in Ukraine massively affects logistics from or to Europe and raises costs for energy and raw materials.

In addition, the current COVID-19-outbreak in China strongly disrupts German companies’ business operations, such as logistics, production, and the entire supply chain within China. Current COVID-19-prevention measures lead to around 50% of companies reporting a complete disruption or a severe impact on logistics, warehousing, and supply chain.

“What companies need now are signs of stability. We encourage the Chinese and European leaders to send positive signals at the upcoming EU-China Summit in contributing to world peace.”, states the All-China Board of the German Chamber of Commerce in China. “Being in the middle of the current COVID-19 wave in China, the German business community strongly needs an indication of the direction of the Government’s COVID-strategy, to minimize the severe impact on business operations and supply chains. Currently, timely and transparent communication on the next steps and measures are urgently required.”

Key Findings of the Flash Survey

Impact of the war in Ukraine:

• 46% of the surveyed German companies in China’s logistics to, from, and through Europe are completely or severely impacted by the current geopolitical crisis 
• 55% of German’s companies business operations are completely or severely impacted by rising energy and material costs
• 57% of the respondents report that the current geopolitical crisis impacts their headquarters’ China strategy
• Due to the current geopolitical crisis, 32% of German companies expect planned business or investment in China will be put on hold. 10% report that current business might be moved out of China and 27% expect that the diversification in Asia will be accelerated.
• In contrast, respondents also report that more parts of the supply chain will be shifted to China (23%), localization of business functions (R&D, etc.) will be accelerated (22%), and further business or investment will be allocated to China (14%)
• For 46% of the respondents China’s attractiveness as opposed to other markets decreased due to the current crisis

Impact of COVID-19:

• 51% of German companies’ logistics and warehousing and 46% of German companies’ supply chains are completely disrupted or severely impacted by the current COVID-19 situation in China. Only around 7% report no impact in these business operations. Furthermore, also production and manufacturing (31%), staffing rate (28%), and demand (29%) are completely disrupted or severely impacted for a significant portion of German companies.
• Especially supply chains are severely impacted following the recent lockdowns in China amid the current COVID-19 outbreak: For the upstream supply chain operations, 40% report a complete disruption or severe impact due to raw materials or upstream products not being available. Further, 30% report a complete disruption or severe impact in the transport of raw materials and upstream products to the company. For the downstream supply chain operations, the delivery of finished products to local customers (35%), and export of goods to Europe (33%) is severely impacted or completely disrupted.
• German companies require more support from the local governments with timely communication of measures and policies (66%) green channels for staff (e.g. to be able to commute to work) (59%), green channels for logistics (56%), and facilitation of quarantine procedures for staff (36%)

To download the press release please click here.

 

Our sincere thanks to the German Chamber of Commerce in China for kindly sharing these insights.

Dates for Diaries: Decoding China - Will China’s Stimulus Fuel Growth or Will New COVID-19 Outbreaks Stifle Progress? 23.02.22

New COVID-19 strains and the resulting lockdowns have thrown a wrench into the Chinese economy, causing economic and even political strife. But do the current actions to control the recent Omicron outbreak once again risk disrupting consumption and ensnaring supply chains? Or will lifting the lockdowns only increase the spread of COVID-19 and raise anxieties that could spook consumers and markets?

Join Houze Song, Fellow at MacroPolo, the think tank of the Paulson Institute and author of the "1Q2022 Outlook: Strong but Short Stimulus Expected to Stabilize Growth," as he answers questions and gives his take on this important snapshot of 2022.

To join please click here.

Our sincere thanks to both the Paulson Institute and Macro Polo for kindly sharing this information.

Important Travel Update: UK to be quarantine free for travellers with China Sinopharm and Sinovac vaccines

Dear CBI Members and Partners,

Some encouraging international travel news!

From 11th February 2022 the UK will recognise specified Chinese vaccines. Travellers entering the UK after that date from China or those with the China Sinopharm or Sinovac vaccines will not need to self-isolate on arrival or take any tests either before travel or after arrival.

For a summary of these positive changes please refer to the link and screen shots below:

https://www.gov.uk/government/news/uk-open-for-travel-with-all-restrictions-removed-for-eligible-vaccinated-arrivals

Our thanks to the UK Consular team in China for sharing this information and in particular HM Consul Chris Wood and his colleagues at the British Consulate in Shanghai.

 

 

AstraZeneca Press Release - Covid 19

Dear CBI members and Partners,

Kindly find CBI member AstraZeneca's press release relating to their  AZD7442 PROVENT Phase III prophylaxis trial.

Download AZD7442 PROVENT P3 HLR_FINAL

Our thanks to AstraZeneca's China team for kindly sharing this information.