European Companies in China Cut Revenue Forecasts on Covid Zero

(Bloomberg) -- European companies say China's zero-tolerance approach to containing Covid-19 is battering their supply chains and spurring them to cut staff and revenue forecasts, underscoring the costs of President Xi Jinping's signature policy for handling the pandemic.

Nearly 60% of respondents in a recent survey said they are lowering revenue projections for 2022, most of them by 6% to 15%, the European Union Chamber of Commerce said in a report released Thursday.

Almost a third of the firms said they have reduced staffing levels, mostly in the education industry, followed by legal, retail and cosmetics. Some 92% of the 372 respondents in the April 21–27 survey said Covid Zero measures have hurt supply chains, with 85% saying they struggled to get raw materials or parts for manufacturing.

“To restore confidence in the China market, European businesses need more predictability,” the chamber said in its report. “One of the best ways to provide this would be to introduce measures that will allow China to open further, while maintaining a robust response to minimizing health risks posed by Covid-19.”

The chamber said it had urged Chinese authorities in letters to vaccinate people over aged 60 who are most vulnerable to sickness, allow positive cases with little to no symptoms to quarantine at home and to use a bigger cocktail of vaccines, including mRNA shots.

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Representatives of foreign firms in the world's No. 2 economy met Commerce Minister Wang Wentao last month to discuss the impact of measures such as locking down cities, mass testing and largely closed borders. China has shown no sign of letting up -- a lockdown in Shanghai has entered its second month and the capital Beijing is stepping up efforts to prevent a similar ordeal -- though officials did pledge measures to ease supply-chain woes.

China has inoculated most of its people with domestically made coronavirus vaccines based on older inactivated virus technology, but has not approved any using mRNA outside Hong Kong and Macau. CSPC Pharmaceutical Group Ltd. and Shanghai-based Stemirna Therapeutics have domestically made mRNA shots moving toward clinical trials.

The survey by the EU Chamber found that most firms said they wouldn't make any changes to their China operations yet, or that it was too early to do so.

“This demonstrates that, despite the challenges now being faced, European companies seemingly remain committed to China in the long term and are prepared to weather the storm for now,” the report said. “The question is, for how long?”

With assistance from Bloomberg