China's strict Zero-Covid policy approach has changed the framework conditions for foreign companies in China dramatically. While the Chinese government is pointing to opening up the country further by easing the Zero-Covid hardships, local European and German companies are reporting growing challenges and problems.

Lockdowns, Lockdowns, Lockdowns!

First of all, these include the recent lockdown measures in Shanghai and other Chinese cities, which are having a major impact on local production and global supply chains. Many foreign specialists and executives are considering leaving the country earlier than originally planned, or have already done so. Even though the quarantine time has been currently reduced, the ongoing entry restrictions and quarantine measures are still presenting companies with the question of how to fill these positions, but also how to bring urgently needed specialists to China for short stays.

Besides all the pandemic-related problems, there is also new legislation such as the Chinese Data Security Law, which limits cross-border data transfer, the Anti-Foreign Sanction Law, and the German Supply Chain Due Diligence Law require companies to evaluate their previous China strategy to be able to continue to successfully operate in the Chinese market in the long term.

China strategy debate

The following points show, what is currently the subject of the China-Strategy debate in many companies:

• China is and will remain a very important market for the German economy. In terms of size, concerning raw materials, now also in terms of innovative strength.
• Despite all the appeasement: uneasiness and caution in dealing with Germanys’ No. 1 trading partner of the last six years are increasing.
• Deglobalization and decoupling tendencies are real. The questions are: How far will they go? Can this development be stopped?
• Diversification strategies: No withdrawal from China, but a stronger orientation towards Southeast Asia (China plus 1 / China plus 2).
• The Asian market (without China) is interesting and has great potential. However, it also has local infrastructural deficits that can prevent good business.
• Stronger localization in China, up to the complete separation of the China business.

Further reading:

German Chamber Flash-Survey: Companies’ Production Resumption Hampered & COVID-Strategy Prompts Foreign Employees to Leave China

EU Chamber Business Confidence Survey for Foreign Companies in China: Key Observations

European Business in China: Back in Perilous Waters (J. Wuttke)

Dirk Müller
VBU Partner Shanghai

The author is a management consultant for strategy and strategic marketing. As the VBU Partner in Shanghai / China, he supports small and medium-sized companies on their way to China and to be successful in the Chinese market - through trend and market analyses, strategy development, project support, intercultural competence, and a broad on-site China service network.

(Photo: D. Mueller)