BUSINESS Outbreak weighs on foreign firms in China as they strive to restart work

BUSINESS

Outbreak weighs on foreign firms in China as they strive to restart work

Global Times

08:36, February 28, 2020

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A Tesla store in Beijing. (Photo: IC)

Fallout from the deadly novel coronavirus (COVID-19) is weighing on the operations of some foreign companies in China, with challenges from travel disruptions, supply chain gaps and reduced productivity. 

Some US companies are seeing a daily loss of 500,000 yuan ($71,210) due to postponed work resumption.

Industry observers noted that the coronavirus epidemic will cast a shadow on China's trade with the US and Europe in the first quarter, including a marked decline in exports, while growth is likely to pick up for the whole year. 

In particular, China's trade with the US will gain significantly in 2020 due to the implementation of their phase one trade deal.

Nearly one-third of US enterprises face increased costs and lower revenues in China amid the COVID-19 outbreak, according to a report sent to the Global Times by the American Chamber of Commerce in China.  

About 50 percent of surveyed US companies expect revenues in China to decline if business does not return to normal before April 30, the report showed. About 10 percent of them are experiencing a daily loss of 500,000 yuan.

Meanwhile, 50 percent of European businesses in China surveyed forecast a double-digit drop in first-half revenue, according to a report the European Union Chamber of Commerce in China sent to the Global Times. And 25 percent of them see a drop exceeding 20 percent in revenue.

Foreign companies surveyed acknowledged that the most severe challenges come from logistics disruptions and reduced staff productivity. 

Wang Yingtao, head of the Beijing representative office for Germany-based dental material manufacturer DMG, told the Global Times that some of the company's imports are delayed due to cuts in air and sea links between the two countries because of the coronavirus.

"We have already predicted a decline in February sales in China," Wang said. 

Also, many foreign senior executives cancelled or delayed their plans to travel to China, which inevitably affected the roll-out of foreign companies' annual strategies for the Chinese market, industry insiders told the Global Times.

Edmund Yang, a PricewaterhouseCoopers partner in Beijing, told the Global Times that sometimes it's difficult to send employees to clients' office to discuss projects due to certain restrictions, which have led to a "slight" reduction in work productivity. 

According to the EUCCC report, another issue of concern among European firms is inconsistent rules applied in different cities, which some lament can "frequently change and often at short notice" and make it very hard to move goods and people across China to meet demand.

Both the US and European firms are expecting more pro-growth policies from the Chinese government, such as tax cuts as well as more clear and consistent policy guidelines.

The Ministry of Commerce said on Thursday that the major issues foreign companies have encountered during work resumption will be addressed step by step soon. 

US companies, in particular, hope Washington will relax its China travel ban over worries that the epidemic will further dampen China-US bilateral relations. 

The restriction, effective on January 30, has been criticized by observers as an overreaction and a prejudiced act that has seriously impeded normal bilateral economic activities and people-to-people exchanges.

While uncertainties persist over when the virus will come under control and how long its effect on US companies will last, about 25 percent of American companies surveyed said they won't change their investment plans in China. 

Such confidence is cemented by the sweeping and effective measures taken by Chinese government to contain the COVID-19 epidemic, according to Gao Lingyun, an expert at the Chinese Academy of Social Sciences.

DMG also said it will maintain its strategy in China, according to Wang. The company will continue its schedule of moving whole production lines to China very soon.

Industry insiders predicted that in the first quarter, China's exports to the US and Europe will take a dive due to the coronavirus, but imports could remain flat due to the mixed effect from expanding imports of medical supplies.

"We expect to see a significant hike in China's trade with the US in 2020, as Beijing steadily carries out the terms included in the phase one trade agreement," Gao told the Global Times. 

Gao warned that certain countries may need to rethink how to properly handle a trade conflict with China, in light of how the global supply chain has been reeling from a halt in China's factories. 

He said that as China has diversified its trade destinations, trade with Europe will continue the upswing in 2020.


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