China’s “unsustainable” zero-policy Covid is hurting international businesses

China's "unsustainable" zero-policy Covid is hurting international businesses

Global brands have disclosed the harm to their bottom lines as a result of China’s zero-covid policy, as both supply and demand took a big impact with millions of people living under strict lockdown. In recent weeks, officials have shut down dozens of mainland Chinese cities, including the financial capital of Shanghai, as they attempt to eradicate the coronavirus.

Over the last few years, many businesses have worked to shift at least some of their manufacturing outside China, thanks to the trade war with the United States. Last month, Apple warned of huge losses due to the COVID-19 outbreak in China, saying that supply chain issues could hit its sales by as much as USD 4 billion to USD 8 billion this quarter. Additionally, Microsoft also said that shutdowns in Chinese production had hurt its supply of surface laptops and Xbox consoles, and could potentially “have a big impact” on its quarterly performance.

Many companies had just run up millions, or billions, of dollars in losses due to the war in Ukraine, which led to a massive — and costly — corporate exodus from Russia. The combination of both events has created a staggering one-two punch for multinational corporations. “Like it or not, at this point if you’re a multinational, China is probably your first or second-largest consumer market,” said Ben Cavender, managing director of the consultancy China Market Research Group.

Two of the world’s biggest automakers– Volkswagen and Toyota– were forced to suspend production recently. While both companies have since resumed production, they warned that they would only build up gradually as supply chain snags continued. However, many brands have expressed optimism about recovery for their businesses once the crisis subsides.

As per latest calculation based on government data, at least 31 cities in China are under either full or partial lockdown, potentially affecting about 214 million people across the country. While other nations continue to reopen, some foreign companies may consider moving their regional headquarters out of China, according to Jorg Wuttke, president of the European Union Chamber of Commerce in China.

China’s enormous services sector suffered its second steepest drop on record in April, while manufacturing activities also hit a record low. Despite that, Chinese President Xi Jinping has doubled down on the country’s pandemic approach, saying that the government would “resolutely adhere to” its “zero Covid” policy. Meanwhile, WHO Director-General Dr Tedros Adhanom Ghebreyesus has termed China’s “zero Covid” policy as “unsustainable”. “When we talk about the zero-COVID strategy, we don’t think that it’s sustainable, considering the behaviour of the virus now and what we anticipate in the future,” he had said.

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