Companies Leaving China

Are Companies Leaving China And Why? Things You Should Know

The nation was able to quickly reduce infection rates during the initial outbreak of COVID in 2020 thanks to China’s persistence in following its Zero-COVID policy. Tight COvid controls in China have reopened the discussion of moving supply chains outside of the nation. Are companies leaving china? Yes, but only minority. It may not matter much in the big picture if some factories leave China.

Given the general unease among businesses in a variety of sectors regarding the government’s response to the pandemic, some are rethinking their investment plans while others are thinking about completely exiting the Chinese market. From China’s perspective, the movement out of local manufacturing is not going to be significant enough to really alter the nature of China’s role in the overall supply chain,

To find out more, keep reading.

COVID Policy And Restrictions In China

Currently, China has some of the strictest travel restrictions and lockdown policies in the entire world. For both businesses and individuals, these policies have presented a number of difficulties.

Zero-COVID policy

Even if there are only a few infections have been reported, China has mandated lockdowns in its cities. This is one of the strictest and most restrictive policies in the world, with millions of people being occasionally imprisoned in different parts of the nation, due to an intolerance for even a slight increase in COVID-19 infections.

Businesses must temporarily cease operations until local authorities have verified that there are no new infections in the area, with the exception of essential suppliers like supermarkets and food stores.

As a result of these restrictions on how people and things can move around, logistic and transport networks have been severely impacted.

Travel restrictions

Many high-level expatriates have decided to return home as a result of the effects of recent lockdown measures, but travel to and from China has been severely restricted, and travel restrictions have further halted their plans. Due to this, not only those who are based in China and want to return home face difficulties, but also the businesses that are losing staff members and finding it difficult to find replacements.

Companies Leaving China

4 Group Of Business

Group 1: Financial Investors

The most recent group is this one. By the end of 2016, the correct amount of US portfolio investment in China was $368 billion. Just the increase from 2017 to 2020 added another $781 billion. (No number has been released for 2021 because the Department of the Treasury pretends that the Cayman Islands receive the most funding and only releases accurate data once a year.)

The PRC needs money, so Chinese incentives as well as the allure of taking advantage of undeveloped financial markets attracted this group. However, it is impossible to gauge investor interest from fundamentals or that they don’t matter. Aside from those who overcommitted financially and are pleading for other people’s money to make up for their error, it’s also much simpler and quicker for portfolio capital to exit than for physical operations.

The incentives that businesses with various China-related activities face have an impact on policy. The total amount of US portfolio investment funding a dictator supported by a cult of personality is. . . gross, but it can quickly self-correct. Controlling investment that helps the PRC in crucial areas, like cutting-edge dual-use technology, should be the main goal of American policy.

Group 2: Producing For Export

Many businesses invest directly in China and primarily use it as a production hub for exporting goods abroad. Before COVID, the PRC’s trade in 2019 (over $1.8 trillion) was funded by foreign sources for 40% of that total. This was China’s initial enticement and has been profitable for more than 20 years, but it can be unraveled.

Political tensions with the US are one shot across the bow, from the minor annoyance of tariffs to enormous costs in a Taiwan conflict. Another is Zero-COVID. As the labor force declines, wages will continue to rise. Rich nations are courting some high-margin producers. Though they still face logistical and scale issues outside of the PRC, low-margin producers have options from India and Indonesia to Mexico and Vietnam.

Small-scale operations shifts have already been made by Chinese exporting companies due to the high level of commercial risk posed by Xi’s aggressive foreign policy and insistence on near-absolute control. Washington should support a secure business climate at home and regularly publish thorough analyses of Chinese behavior to keep businesses informed, but it is unlikely that these businesses will relocate to the US.

Group 3: Selling To/in China

Exporting and producing locally are two ways to reach international markets. Long-standing obstacles for exporters to China include the exclusion of private businesses from state contracts. Global tensions and Xi Jinping’s desire for less dependence could cause barriers to rise even higher. Producing in the PRC for the domestic market is similar to producing for export, with the exception that the endlessly hyped Chinese consumer still saves assiduously and may never become wealthy.

Even though there are incentives to find customers elsewhere, businesses will be wary due to weaknesses in other markets. In terms of GDP growth, India will always surpass China. India, on the other hand, is significantly poorer, accounting for less than 20% of global wealth. Although the populations of Vietnam, Indonesia, and the Philippines combined are barely one-third that of China and have a mixed history of long-term policy, they have high growth potential and intriguing consumer markets.

It can be difficult to effectively influence companies that sell to the PRC. The appeal of nations’ domestic markets, including China and others, is primarily influenced by their own political decisions. Although there isn’t much on the horizon, the US could use comprehensive, high-quality trade agreements to increase interest in nations like Indonesia.

Group 4: Supply Chains

Because materials, components, or assembly are sourced from the PRC, the final group may appear to have little exposure in terms of investment, revenue, or jobs, but the PRC can still be important. The advantage of partial sourcing in China can be very substantial or at the very least profitable for extended periods of time due to the country’s inherent competitiveness and aggressive government intervention.

It is possible to break up supply chains in pieces, but it will take significant effort to completely remove the PRC from key chains. Beijing can maintain control over production by heavily subsidizing participation in just one link in the supply chain where Chinese companies are already established. The fierce lobbying by American companies against limitations on setting up supply chains in China highlights their dependence.

Why Are Companies Leaving China?


Businesses can’t predict when they might go into lockdown and how long it might last because of the uncertainty surrounding the lockdown’s timing. Businesses are consequently facing more difficulties and unforeseen losses for which they were unprepared.

In addition to the temporary closures, which in some cases resulted in permanent shutdowns, other issues like the cost of operations, disrupted supply chains, and issues with human resources have also emerged.


Local and global supply chains have been severely disrupted by problems with trucking, air freight, and shipping services. Trucks are still unable to mobilize because of constraints and a lack of manpower, while numerous ships have been waiting in Chinese ports for extended periods of time. Businesses face a growing number of challenges in meeting demand as a result of late deliveries of finished goods and raw materials.

Particularly the Shanghai lockdowns had a negative impact on both domestic and international supply chains. The largest and busiest port on earth is located in Shanghai, and since its operations have been suspended for more than two months, severe effects have been felt on supply chains around the world.

Suto Logistics, a Chinese logistics company, delivered daily necessities to support city operations during the lockdown rather than its usual cargo load, which in normal circumstances would have weighed more than 1,000 tons of goods.

Given that such a sizable portion of global trade is processed through Shanghai, other examples can be seen in multinational corporations like Apple, Tesla, Amazon, and Adidas who have also experienced supply chain shocks.

The prolonged lockdowns in Shanghai had a negative impact on consumers all over the world and contributed to additional global inflationary shocks. Companies frequently experience unanticipated cost increases as a result of elevated freight costs caused by delays and congestion in ports around the world.

Travel restrictions

While it is still possible for people to travel to China, the restrictions have made it challenging and created many obstacles that have served to deter open travel.

High flight costs, canceled flights, challenges obtaining required documentation, and protracted quarantine periods are challenges faced by those attempting to enter China. For those who want to enter the country or who want to leave and return in the near future, the lengthy quarantine and health screening procedures have grown tiresome.

Travelers entering China are required to submit PCR tests within 24-48 hours of their flight as well as an antigen test prior to takeoff, according to restrictions that will still be in effect as of May 20, 2022. Travelers must have received their vaccinations within 14 days of entering China in order to enter. Entrants are screened at the airport and must present documentation of negative test results and vaccination records upon arrival. All travelers must also endure a quarantine period that must last at least 14 days but could be longer depending on the area.

Rapid and unpredictable changes in regulations in certain sectors

As we can see with companies like Yahoo and LinkedIn, regulatory policies that are specifically directed at certain industries have caused a number of foreign-based companies to withdraw from the Chinese market. Most notable is the crackdown on the tech sector, which was demonstrated by the cancellation of Ant, Alibaba’s fintech division’s IPO. Such regulatory control measures have been extended to other significant industries like gaming, private education, and entertainment and have contributed to a general perception of hostility and unpredictable change from foreign businesses.

Do Companies Really Leave China?

The effect of COVID-19 on the American business community in China was recently studied by AmCham China. Key performance indicators and business-related factors like supply chain, profits, talent retention, and investments were covered in the survey. The survey covered the Chinese government’s efforts to stabilize the economy and reopen business sectors through a variety of different policies.

Some noteworthy conclusions include:

  • Respondents reported a general decline in confidence in the country’s ability to conduct business as a result of the recent outbreak and the imposition of restrictive measures.
  • More than half of the companies surveyed had already scaled back or postponed their investments in the nation.
  • The majority of businesses reported decreased production capacity as a result of a shortage of supplies and labor as well as the uncertainty of government-issued lockdowns.
  • Additionally, the respondents forecast decreased revenue for the year.

A little more than half of the companies surveyed said that “Dynamic Zero-COVID” policies and their effects are keeping out foreign workers from moving to China when it comes to attracting and keeping talent. However, more than one-fourth of the respondents claimed that the COVID-19 restrictions caused them to reduce their foreign staff by more than 30%.

Some companies have thought about relocating their operations, or at least a portion of them, outside of mainland China in light of all these factors. Some anticipate the complete shutdown of operations in China, while others are considering moving their corporate headquarters.

In a recent flash survey by the EU Chamber of Commerce in China, 23% of EU companies said they had thought about relocating their investments from China.

Businesses operating in China had a generally positive perception and sentiment of the business environment in China at the beginning of 2022. The sentiment has significantly changed, though, as a result of the disruption of daily life that has been observed in some major cities and the lack of a definitive indication of when the strict policies will end. Many other businesses are rethinking their position in the market, while multinationals and larger businesses continue their discussions with authorities.

Fact: Businesses Still Invest In China

Foreign direct investment into China increased by 26.1% year over year during the first four months of 2018, according to data released on Thursday by the Chinese Ministry of Commerce. Germany’s investment increased by 80.4% during that time, while American investment decreased. rose by 53.2%.

In contrast, according to data from Wind, Vietnam saw a 56% year-over-year decline in foreign direct investment to $3.7 billion in the first four months of the year. U.S. direct investment abroad fell by 14%.

Many factories in the Shanghai region have been operating with limited or no production for weeks as a result of the most recent Covid lockdowns in China, which have also slowed the ability of trucks to transport goods throughout China. This image shows a textile company’s workshop in the nearby Jiangsu province.

CFOTO | Future Publishing | Getty Images

Outside of China, Rana said, it is currently very challenging to match the size and scope of China’s supply chains. Only supply chains for extremely niche goods, such as semiconductors or electric vehicle components, may relocate to Malaysia, Vietnam, or other nations.

Moreover, new business models are being supported by China’s dominance in the global supply chain.

Shein is a prominent example. The business, which is backed by investors like Sequoia Capital China, has combined big data analytics with its Chinese supply chain network to establish itself as a global e-commerce leader in low-cost fast fashion.

According to Skyline Ventures’ managing partner, who was speaking in Mandarin and CNBC’s translation, “China’s supply chain advantage is not only based on labor cost.”

Majority Of Companies Still Choose To Stay

Even though many foreign businesses are considering reducing their investment as a result of the COVID lockdowns, they only make up a small portion of all businesses in the nation.

Since moving operations out of China is an extremely difficult and complicated process, the majority of businesses do not currently have such plans. Even though they may find the COVID policies to be annoying, they are still hesitant to leave a well-established market due to a temporary inconvenience.

The Chinese government is currently looking for ways to meet business demands without endangering the health of its citizens as it becomes increasingly aware of the impact the pandemic is having on the nation’s supply chains. The improvement of foreign investment services and expansion of opportunities for foreign businesses are on the agenda, according to the Ministry of Commerce.

Influence Of Covid On Future Investments In China

The US and Germany’s investments accounted for the majority of this economic activity, which saw a rise of 26.1% in foreign direct investments in China during the first four months of 2022. China has an advantage in the supply chain beyond just having low labor costs. Multiple supply chain hubs help to improve business resilience and process efficiency.

Investors are now turning their attention to other emerging markets as a result of the most recent changes to COVID-19 policies and the responses to the outbreaks. The nations of Southeast Asia will now be considered as a possibility in an effort to diversify supply chains and lower risk. However, this does not imply that businesses are completely abandoning the Chinese market. In fact, a lot of businesses are still waiting for policy changes that will make Chinese investment profitable once more.

In the most recent 2022 Sino Benelux Business Survey, 30% of participants said they had thought about moving (some of) their operations outside of China. The effects on the economy will undoubtedly be felt, despite the fact that a sizable portion of respondents still desired to maintain their operations in the nation.

Any disruption in the supply chain could have a negative effect on the many Chinese production facilities that are used by European companies. This is supported by the choice or consideration of moving to a different area, which exemplifies the short- and medium-term effects on business confidence.

Final Thoughts

There are many reasons for businesses to reduce their China operations. Despite the fact that every circumstance is unique, corporate decisions can be categorized according to the type of activity they involve in the People’s Republic of China (PRC).

Even though foreign businesses are currently under a lot of pressure, missing profit goals and suffering losses seems like a more manageable outcome than completely moving operations and entering a new market.

Finally, China is already making efforts to improve the investment climate for foreigners. Among the steps taken by the nation to draw more foreign investment into the country are the reduction of restricted industries on their Negative List and the opening of additional free trade zones.

Also Read: What Is Chinese Overtime?

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