New Questions Arise For U.S. Businesses In China After “Jarring” End To Zero-Covid Policy

U.S. companies in China are optimistic that the easing of the country’s stringent zero-Covid policies will pave the way for improvement in business, American Chamber of Commerce President Michael Hart said in an interview from Beijing on Thursday.

“Most of our member companies now are pretty optimistic that the Covid impact itself will be pretty short lived – one to three months, and it’ll be over,” Hart said via Zoom. “Everybody’s pleased that flights will be opened up, and the quarantine (upon arrival) is over.”

Uncertainty about the speed of a recovery in consumer spending in the world’s No. 2 economy remains as Covid-19 cases continue to spread. “It’s still an unanswered question about how consumer spending will recover. I think it’s going to be a little while — probably not in the first quarter,” said Hart. Businesses are more uniformly hopeful an improved political atmosphere between the U.S. and China after a summit between President Joe Biden and President Xi Jinping in November will lead to better commercial ties, he said.

The Beijing-headquartered American Chamber of Commerce in China has nearly 1,000 members, making it one of the largest foreign business groups in the country. Members include Boeing, Merck, Apple, Intel and KKR. Edited interview excerpts follow.

Flannery: How do you size up the impact of the easing of “zero-Covid” policy for American companies?

Hart: People used to always love the predictability of China. With the zero-Covid policy, there was no predictability. That was very disruptive because of constant testing, constant changes and not being able to travel domestically. People didn’t like it.

On one hand, American business are very happy that zero-Covid is over, but the sudden change was a little bit jarring — everybody’s getting used to that.

Another piece is Covid itself, because of its sweep. I got Covid. Our staff went from 0% to 40% positive in about four days; then, within about a week, it was 60%, and within 10 days, it was 80%. Now more than 80% of our staff have gone through Covid.

Most of our member companies now are pretty optimistic that the Covid impact itself will be pretty short lived – one to three months, and it’ll be over. Everybody’s pleased that flights will be opened up and quarantine is over.

Flannery: What does that mean for investment?

Hart: We’re cautioning the Chinese government that FDI (foreign direct investment) isn’t coming back as soon as flights are open. And what we are hearing is that flights may not return (much) until March. Many of U.S. airlines have their airplanes already on other routes. The Chinese airlines are going to be able to ramp up faster.

Flannery: What else will affect FDI?

Hart: Normally I’d say it’s potentially a two-year process: there’s an interest in investing, then due diligence, and then putting the actual investment in place. The big impact (downward) is going be next year when we’ll have gone a full three years since the start of Covid.

Flannery: Many U.S. companies are focused on Chinese consumers. What’s the state of recovery in consumer spending?

Hart: That’s an interesting question. There were some photos in the last couple of days of visa application lines forming outside the U.S. embassy. One question is whether a lot of people will go (overseas) for a vacation and spend money they haven’t spent in China in the last two years.

Most young Chinese people have never lived through a downturn. Because of rising costs, there are a number of Chinese that are being a lot more conservative with their money. Overall, it’s still an unanswered question about how consumer spending will recover. I think it’s going to be a little while — probably not in the first quarter.

Flannery: There seems to be hope for improvement in overall U.S.-China relations after the Biden-Xi meeting and other developments. Do you agree with that, and what do those kinds of atmospherics mean for U.S. businesses in China?

Hart: There are positive signs right now in U.S.-China relations. First, the Biden-Xi meeting put a floor under the relationship. Both groups realized that they need each other, and that was positive.

Second, there were actually a couple meetings last month or in early December among working level government officials. Secretary of State Blinken is supposed to come to China in early February. There are potential plans for Biden to visit China in 2023. So it all looks like it’s going in the right direction.

A more cautionary point is that Congress is still fairly cold on China. The House is putting together a select committee to do investigations and (there is) some concern that any companies with investments in China might be part of committee’s work. It depends on what the select committee on China actually does. With the fireworks over the House speaker race, maybe that committee won’t be as aggressive. That’s what came up in discussions we had with Congress members (recently). Nobody (in Congress) is pro-China. Everybody’s a hawk or a super hawk right now on China.

Flannery: Do you have any specific expectations for what will come out of the Antony Blinken visit next month?

Hart: Number one, the fact that he’s coming is a good sign that the U.S. is talking to China. The other thing that’s positive is Ambassador Qin Gang has been promoted to head the Ministry of Foreign Affairs. A lot of U.S. businesspeople who have met him like him; they think his recent experience in the U.S. is probably helpful. It’s probably a good thing that you have a foreign minister who has a very clear, very sober view of U.S.-China relations from there in DC.

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