No. of European firms thinking of leaving China more than doubled since February, US ban on Xinjiang imports enters into effect & China is top of agenda at G7, NATO summits -- China Boss News 6.27.22
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The Big Story in China Business
EU Chamber of Commerce: No. of European firms thinking of leaving China more than doubled since February
“Nearly one in four European companies in China are considering shifting their investments out of the country as the ongoing Covid outbreaks and lockdowns dim the outlook for the world’s second-largest economy,” Bloomberg reported. “The number of European firms reassessing their options in China was the highest proportion in a decade in the survey, and also more than double the 11% recorded in a February poll,” news staff said.
Bettina Schoen-Behanzin, vice president of the European Union Chamber of Commerce told AFP that President Xi's zero-Covid had "le[ft] headquarters no option but to look for other locations." "The world does not wait for China," she said.
According to AFP, “92 percent of member companies were hit by supply chain problems, and three-quarters said their operations were negatively impacted by the Covid controls,” while “60 percent of respondents said in April that they had lowered their 2022 revenue projections.”
The Financial Times also called attention to the chamber’s report, noting European companies in China were becoming "increasingly isolated from headquarters by zero-Covid," which increased the risk of a "long-term fallout on international business."
In Germany, however, “the war in Ukraine has focused minds even more on the dangers of close business relations with an autocracy,” the Economist said. The new coalition government in Berlin promised to change Angela Merkel’s policy of “pragmatic engagement” with China to better align with European values. That has put additional pressure on large firms, like, Volkswagen, who, last week, came under fire from its “anchor shareholder, the state of Lower Saxony,” which “joined Germany’s most powerful union boss in calling on the company to address allegations of human rights abuses in Xinjiang, the Chinese province where the manufacturer has had a car plant since 2013,” the Financial Times said.
But China’s zero-Covid policies are likely the biggest factor in the number of foreign companies looking for an exit, and reports on the ground say that “the situation is grim,” AFP said.
AFP:
The imposition of restrictions to stamp out COVID-19 outbreaks this year has intensified pressure on firms already grappling with a slowdown in the economy and regulatory crackdowns on sectors including property and tech.
Bai, 27, told AFP she was laid off by a US tech company that was preparing to end its business in China.
"In some ways, we saw it coming," she said, only giving her surname. "Its China operations have been losing money."
"It's not the first to leave the China market and won't be the last."
For Bloomberg’s full report, Nearly One in Four European Firms Consider Shifting Out of China, click here. For AFP’s report, 'Huge uncertainty' for EU firms over China's Covid curbs, chamber warns, click here.
For FT’s update, EU companies say China units increasingly isolated from HQ by zero-Covid, click here. For the Economist story, Germany is recalibrating its close economic ties with China, click here.
For FT’s report, Volkswagen faces union and shareholder calls to examine China human rights allegations, click here. For AFP’s grim account of the effects of Xi’s zero-Covid, Layoffs and exits: Firms in China teeter under zero-COVID pressure, click here.
Law and International Xi
US ban on Xinjiang imports enters into effect
“Tough new US regulations on the import of goods from the Xinjiang region” entered into effect June 21st, BBC reported.
BBC:
Under the rules, firms have to prove imports from the region are not produced using forced labour.
. . . The restrictions will be extended to all imports under the Uyghur Forced Labor Prevention Act (UFLPA), which took effect on Tuesday.
In a statement late last week, US lawmakers said the law sends "a clear message that we will no longer remain complicit in the Chinese Communist Party's use of slave labour and egregious crimes against humanity".
Ji Siqi Luna Sun He Huifeng and Kandy Wong at The South China Morning Post wrote that the new law has “crippled China’s cotton industry before even entering effect.” “[T]he new law will undoubtedly continue to cloud – or even fundamentally change – trade relations between” the US and China “ even as the Biden administration mulls the removal of some tariffs imposed on Chinese goods in an attempt to mitigate out-of-control inflation in the US that has ballooned to a 40-year high,” they said.
Siqi, Sun, Huifeng, & Wong, SCMP:
Since President Joe Biden signed the act into law in December, its looming presence has gradually taken a mounting toll on several industries in China.
Even though the law targets only Xinjiang, there’s been a domino effect on global supply chains, with shock waves rippling through China’s economy, which is already facing multiple headwinds.
A cotton mill owner in southern Xinjiang told SCMP that “[banning Xinjiang cotton] basically means choking the supply chain of China’s textile industry.”
For BBC’s report, US ban on imports from China's Xinjiang to take effect on Tuesday, click here. For Siqi, Sun, Huifeng, & Wong’s stellar SCMP article, How the US’ Xinjiang labour law leaves millions of tonnes of cotton unsold, click here.
Geopolitics
China is top of agenda at G7, NATO summits
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