Lengthy lockdowns have completely disrupted many MNCs’ business operations in China
Because it lacks a clear exit plan from its zero-COVID strategy, China will continue to impose harsh lockdowns periodically across its largest cities until at least end of this year. MNCs should prepare for protracted disruptions to business operations to emerge on a regular basis. As a start, they should revisit their original 2022 China plans and consider revising down major targets, such as revenues and profitability. MNCs should also start to seriously re-evaluate their investment plans and growth prospects beyond this year, and consider diversifying their supply chain networks and production facilities. Some evaluations of China’s consumption landscape in the long run will also help, given that wide-ranging lockdowns have hammered the country’s consumer confidence.
The lockdowns in Shanghai, mainland China’s most internationalized city, are having a massive impact on many expats’ personal lives. As the government imposes additional rounds of lockdowns in the coming months, the population of expats in China is likely to shrink. MNCs should start to think about how to deal with a situation where they will have to pay more for fewer expat candidates. MNCs should also consider how they can enable local talent to take more senior roles in their China organizations in the next few years.
Shanghai’s COVID lockdowns have entered their sixth week, and Beijing is teetering on the edge of a city-wide lockdown. Even so, China’s top leadership has reiterated its determination to carry on with the zero-COVID approach.
The government’s harsh lockdowns have caused significant disruptions to business operations. Given that Shanghai and Beijing are two cities with very high concentrations of MNCs, the lockdowns and related COVID restrictions have had an outsized impact on MNCs’ China operations. Such impacts are mostly being felt via their supply chain networks, including logistics, warehousing, and factory production.
Major business organizations, including chambers of commerce representing businesses from the US, Britain, EU, and Japan, have used various ways to make their voices heard. The EU Chamber of Commerce in China and The Shanghai Japanese Commerce & Industry Club resorted to open letters to China’s leadership to press the issue. These business organizations also conducted multiple surveys to gauge the sentiments of their membership firms. Overall, their findings are not positive. An increasing number of MNCs have started to seriously rethink their China strategies.
China’s harsh COVID lockdown measures, especially those seen in Shanghai, a commercial hub with the heaviest concentration of foreign business activity in China, have considerably changed the calculation of many MNCs in terms of their China strategy. Predictability and certainty were two crucial factors to MNCs’ operations in China, but they are exactly what China lacks now, as demonstrated by the chaos seen in Shanghai. The fact that China has yet to produce a convincing roadmap with a clear timeline to exit the current lockdowns has further unsettled MNCs in China. If the situation doesn’t improve in the next one or two months, we expect to see more MNCs speak out against current rules. A good percentage of MNCs are likely to start to seriously consider how to reduce their dependence on China in the future, or how to further separate their China operations from those in other regions. Options include: halting new investment, reducing current operational scale, moving at least part of operations out of China, or relocating regional headquarters. Many expats in Shanghai and other big cities that suffered from lockdowns will also consider leaving in the next six to 12 months.
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