An economy just out of quarantine

Since China’s long-awaited travel restrictions were lifted on 8 January 2023, the number of daily inbound and outbound travellers has hit a three-year high, with more than 676,000 people entering or leaving the country.

Following the removal of China’s existing quotas, approximately 84% of the country’s arrivals and departures now come from inland cross-border travel via Hong Kong and Macau. Among the travellers returning to the Mainland are the many students and professionals who had migrated abroad before the pandemic and were only able to return to China following the lifting of restrictions. Business and trade are undoubtedly ready to follow.

Chinese fashion and luxury operators and purchasing teams have returned to Milan and Paris Fashion Week, while government-led trade missions to advanced industrial hubs – including the UK, Germany and Southern Europe – are back on track. CEOs and key representatives of international companies have also resumed their business trips around the region. It’s therefore no surprise that immigration agencies and consulates on both sides are now advising that, after years of difficulties, their calendars are fully booked for the first half of the year.

The future of non-financial FDI

The reinstated link between people, economies and wider regions is now shedding light on the future of non-financial foreign direct investment (FDI), i.e., the total amount of capital injected by companies inside their Chinese subsidiaries, which in the past few years has been limited to a few giant companies in a handful of industries.

If we take Europe as an example – a region with fewer political repercussions throughout these years – Germany, the UK, the Netherlands and France have scaled to 87% of the total investment amount from all 27 member states. Among these, projects by just four large German companies in the automotive and chemical sector make up more than a third of the overall amount.

As well as posing an obvious question about the opportunities available to companies with advanced technology but limited scale, 2023 will likely offer more insight into the sectors actively promoted by China as it looks to revive its homegrown champions.

Top picks from China’s observers include everything health-related, from medical devices, drugs and food supplements, to the more mainstream food and beverage. In fashion and luxury retail, a clear focus has emerged on spending more on collectibles with high long-term value (rare leather bags, top-tier jewellery, luxury watches, etc.), rather than mere garments that now tend to be seen more and more as closet liabilities under the same trend targeting fast-fashion.

For any industry that has invested heavily in the Chinese market during the years of covid restrictions, it’s time to evaluate the effect of China’s “dual circulation strategy” to pump up local demand versus its export-led economy and the resurfacing of travel retail by Chinese tourists if they end up buying overseas, as they did previously.

The challenges for foreign businesses

If we look at the main challenges in the Chinese market for wider businesses and industries, there are clearly struggles regarding how to keep key expatriate personnel in the country. Local rules over individual income tax and social contributions are now making this much more costly than in previous years.

In addition, companies that have applied “China +1 or 2 countries” strategies to reduce the interdependence of their supply chain over the market are considering dispatching seasoned “old China hands” to new growth markets or new projects. As a result, we may see an increase in the number of more senior roles becoming widely available to local personnel with overseas educational backgrounds. That said, companies may then be faced with the challenge of shortening the geographical and so-called ‘cultural gap’ between global headquarters and local outfits.

Restarting from certainties: For most, China is still what it was in 2019

One thing that hasn’t changed throughout the three years of covid is that any scalable business with global ambitions and the belief to turn itself into a multinational corporate (MNC) has to include China on its roadmap with a related strategy as its compass. But what are the main themes that still make China so important for businesses in Asia?

The sheer size of its domestic market and burgeoning middle class

Over the next three years, China is expected to add a further 71 million upper-middle and high-income households. No other economy has consumers with such high spending power and desire for new products. Couple this with the impressive number of suppliers and clients any company can find in its industry, even by simply selecting one of the regional specialised districts along its hyper-developed coastal areas.

The underexposure of Western companies in the Chinese market

Despite what one may think from reading mainstream Western press, a glance at the data on the volume of FDI published by the competent authorities reveals a worrying underexposure of companies from the old continent on the Chinese market, especially when compared to FDI towards the United States.

In 2021, the US recorded a total of US$ 506.1 billion for inbound FDI, with as much as US$ 318.6 billion originating from Europe. In the same period, China recorded an FDI total of approximately US$ 181 billion, with only a mere US$ 4.72 billion of European origin.

That said, it should be noted that the value of this figure is mitigated by the fact that a significant percentage of investments in the country in question come from regional hubs such as Hong Kong and Singapore. Nevertheless, analysts say the real percentage of European investment in China is estimated to be approximately 1/20 of the United States, thus presenting ample potential for growth and consolidation in the future.

China’s interconnected infrastructure

China has always seen investments in infrastructure towards a network of pathways for people and goods as a pre-requisite to attract FDI and develop obsolete provinces and areas. Unlike many of its regional competitors, the county was able to solve most of its geographical challenges through a myriad of world-class transportation hubs (42,000km of high-speed railways, 34 major deepwater ports, 2,000 minor trade ports, 180,000km of highways) supporting a logistics network that has made single-day delivery achievement available for most of its cities.

The appeal of technology development

The pace of industrial modernisation and mass adoption of Internet of Things and AI solutions in the healthcare, security, finance and education sectors via smartphones and apps, together with the robotisation of labour-intensive industries, remains unseen when considering the state of China’s economy in the post-Second World War scenario.

Safety and stability via ever-changing regulation

Although seen as a double-edged sword, China’s bureaucracy has still safeguarded its link with the real economy, avoiding extreme burdens on businesses and consumers. Regulators have overseen potential pitfalls of financial trends in the wider society (P2P lending, property bubble, tech giants’ ambitions on the gig economy), while making sure to grant tax reliefs, subsidies, and benefits to most FDI projects worth supporting.

Undergoing regional integration

Thanks to an increasing number of free trade agreements with other Asian economies and active outreach to stimulate outward direct investment (ODI)-FDI from and towards its economy, China was able to exit the status of a quasi-hermit country and find its own pace in international organisations in less than two decades. China’s access to the Regional Comprehensive Economic Partnership (RCEP) and Association of Southeast Asian Nations (ASEAN) block of nations is the ultimate symbol of its commitment to deepening integration into economic cooperation in the Asia-Pacific region with benefits for all the parties involved.

Are we ready for China’s comeback?

Analysts have already stated that the success of China’s comeback is in the hands of its households and consumers. How much the local population decide to allocate to purchasing, travelling, savings and investments will determine the way the economy rebounds and impacts neighbouring and overseas economies.

For the opportunities that will emerge throughout the year, companies with investments and projects on the ground still hold a first-class seat and are able, as of today, to phase up a renewed commitment to the jurisdiction.

For those that are still evaluating the pros and cons of exposure and presence in the country, a new set of additional reasons to finally make that step is now hard to ignore, as the historical reasons that have made China such an attractive magnet for global businesses in the past two decades also remain.

Photo by Jerry Wang on Unsplash

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There is widespread relief at the prospect of a more predictable operating environment and the resumption of connectivity with the rest of the world since China dropped its zero covid policy. Recovering the more robust levels of confidence common among foreign investors pre-2019 will now need to be the goal if China seeks to capitalise on its reopening, stabilise, grow levels of inbound investment, and return to the “new normal” of annual GDP expansion of 5% or above.

Initial signs of recovery are beginning to emerge as China’s economy begins to come back to life after a year of heavy disruption. Fortunately for the economy, the impact from the first wave of infections arrived early enough in December and January for the process of recovery to capture a significant chunk of the annual Spring Festival boost to travel, leisure and consumption more broadly.

Travel rebounded strongly over the seven-day holiday up 50.9% on 2021, though still significantly lower than 2019 trip volumes (47%) according to the Ministry of Transport. The box office also sprung back to life with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating 2019 takings. Data from Meituan indicates a recovery of China’s restaurant sector has also started, with Spring Festival revenues for some chains already recovering to pre-pandemic levels.

Signals from China’s leadership such as China’s Vice Premier Liu He’s Davos speech, which included a declaration that China’s economy ‘will get back to normal in 2023,’ have also added further fuel to the relief rally. As have the recent approvals for foreign finance firms to set up or acquire wholly owned mutual funds as well as securities brokerages. One interpretation of this sudden raft of approvals is that they are evidence of a more welcoming stance toward foreign business (and the private sector more broadly). Foreign investors, however, continue to hold a range of concerns that will be more challenging to shake off for the economy than the reversal of zero covid has proven to be, or the lower-hanging fruit of granting approvals.

Boardrooms are asking more questions of China as the number of fronts that present risk or uncertainty has grown. Whether regulatory, geo-political or the shock of zero covid on the operating environment and supply chains, decision-makers will need to recover the belief that China presents not just growth potential but a predictable enough environment to invest long-term.

Relations have been strained between China and several of its closest neighbours, as well as some of its largest trade and investment partners, including the US, Europe, Canada and the UK. Reducing diplomatic tension will have a positive knock-on effect on foreign businesses that have consistently listed geopolitics as a key factor affecting decision-making since 2018 and the onset of the US-China trade war.

A recent PwC survey of CEOs in China indicates a high degree of concern about the long-term viability of their business models in large part due to the shifting geopolitical landscape and the uncertainty that has formed as a result. Geopolitical conflict sat in third place on the list of business risks that CEOs globally are bracing for over the next 12 months and five years respectively, sitting behind only inflation and macroeconomic instability.

China’s recent efforts to reengage with international partners, including Chinese Xi Jinping’s attendance at the November G20, the healing of relations with Australia and the rush of outward official visits expected to take place in the months following Spring Festival, are all encouraging signs. The lack of interaction between the governments of the UK and China, for example, has created a void in recent years where normally there would be regular engagement at both senior and working levels. Resuming dialogue while accepting both sides will continue to have, at times, significant differences, will be a crucial step to rebuilding trust and constructive exchange.

Foreign investors will also be watching closely for signs the economy remains a high priority. The sudden nature of the restrictions imposed on the education sector, for example, sent a chill through the economy and left many businesses concerned their sector might be next in the firing line. Providing businesses with greater transparency and advanced consultation on decisions regarding future legislation or adjustments to rules and regulations will help create a more predictable environment and contribute toward restoring trust among investors. Continued steps toward increasing market access and tackling business environment issues will also play a big role.

Regarding the economy, strong growth appears possible in 2023 with projections generally falling between 4% and 5.5%. The second quarter in 2023 is likely to be a bumper one with growth potentially into the double-digits given the low performance of the second quarter of 2022. Although down to an accounting quirk, this will present an opportunity to signal China’s pro-growth stance and provide further evidence of the strength of recovery to the international business community at a time when the global economy is likely to be struggling for positive narratives. The upcoming Two Sessions in March also provides an opportunity to provide reassuring signals to investors.

If strong economic growth is to be a priority for China over the coming years, then recovery of investor confidence will need to feature high on the list of short to medium-term objectives. Any recovery of sentiment, however, will take more than just one of the factors highlighted above to succeed. China’s management of its economy and business-related policies will play a significant role, but unless the backdrop of heightened geo-political tensions eases, uncertainty will persist and continue to weigh upon decision-making for investments, supply chains and any exposure to China more generally.

Initial signs suggest the cautious optimism for 2023 that is increasingly prevalent among foreign business is not misplaced. For board room-level confidence to return, it will require China to take a sustained, collaborative and transparent approach in addition to the return of long-lasting strength in the economy beyond the inevitable bounce from reopening.

The coming months will show what China’s post-zero covid “reset” will mean for business and perhaps provide an early indication of what to expect over the longer term. Foreign investors will be hoping for more efforts to promote confidence and trust in the operating environment for international business, a strong focus on restoring stable long-term growth and predictability in the Chinese economy, alongside visible efforts to dial down geopolitical tensions.

This article was originally published by Caixin as “Opinion: to Capitalise on Reopening, China Needs to Rebuild Investor Confidence”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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With restrictions removed, wave one saw covid spread at an unprecedented speed and scale, with 80% of the population estimated to have been infected with the virus. China’s healthcare system was pushed to new limits with death rates rising through December and early January. However, as Spring Festival approached, official figures indicated hospitalisation rates dropped by 85%, with fears of a second wave of infection triggered by holiday travel ultimately unfounded.

Despite tragedy hitting many families across the country, normality has nevertheless largely returned to life across China. The initial sense of relief at re-opening and fear of the implications of Covid’s unrestricted spread soon turned into a desire to reconnect with family and friends, travel, shop, eat and drink and try to put the last twelve months to the side.

Much of China’s initial rebound in activity was inevitability going to be visible in sectors artificially depressed by restrictions. However, the sharpness of the rebound in travel, leisure and consumption more generally during Spring Festival has exceeded even the most upbeat expectations.

Domestic air travel over Spring Festival was up 50.9% on 2021 though still significantly (47%) lower than 2019 trip volumes according to the Ministry of Transport. Overall, 226 million trips by road, rail, waterway and air were recorded during the week-long national holiday. Meanwhile, revenues in the tourism and hospitality sector over the seven-day period recovered to 80.7% of pre-pandemic levels.

Thailand found itself back at the top of China’s outbound tourism destinations, with two of the three most visited locations being Bangkok and Phuket. Thai visa applications have surged by 300% year-on-year, while purchases of Thai tourism products jumped by 1,000% according to Alibaba.

The cinema box office also sprung back to life, with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating even 2019 takings. Data from Meituan suggests the recovery of China’s restaurant sector has begun too, with Spring Festival revenues for some chains already recovering to pre-pandemic levels. Immediately following the holiday, the IMF moved to revise their GDP growth projections from 4.4% to 5.2%.

If China’s reopening is the big economic story of 2023, then consumption is taking the lead role. Fuelled by record savings rates and supportive government policies, consumption looks set to have a bumper year as revenge spending kicks in and appears likely to rise over the course of 2023. Consumption has been deemed the primary economic ‘driving force’ as the government seeks to both recover activity in the short term and rebalance the economy over the long term. Foreign producers and exporters of consumable goods with exposure to Chinese consumers are likely to see upticks in demand as a result.

China’s outlook isn’t without risks, and the best case is not lacking in potential headwinds. The real estate sector and its associated industries, which contributed 24.2% of China’s GDP activity in 2019, still presents a significant concern. With private real estate developers in crisis mode and property prices falling in riskier areas such as city outskirts or lower-tier cities, the government will need to continue its balancing act to ensure a deeper crisis is avoided.

Exports are also increasingly in the spotlight despite being a rare bright spot throughout the pandemic, reaching a record surplus of $877.6 billion in 2022. However, October 2022 saw demand fall by -0.3%, before November (-8.7%) and December (-9.9%) saw the rate of contractions accelerate sharply. With growth in overseas markets expected to continue to struggle and demand expected to remain soft in the first half of 2023, China’s exports are likely to continue to struggle.

Whether a bumper first quarter boosted by a rebound in consumption proves to be the catalyst for a return to sustained levels of strong growth is yet to be seen. Headwinds such as real estate and exports will likely drag on growth in 2023. Though with intervention so far avoiding a deeper property crisis and demand for Chinese exports in the global south rising, the potential risks associated may be mitigated. Consumption will be the main driving force for growth, and with the IMF raising its growth projection from 4.4% to 5.2% will play a key role in how the Chinese and global economies perform in 2023.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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The transition from strict zero covid measures to complete reopening has been swift, and it remains to be seen what the year ahead will bring for businesses and organisations that deal with China, but experts are generally optimistic.

“China’s change of Covid policy has important implications for all those doing business in and with China. And in my view very positive ones,” says Andrew Seaton, Chief Executive of CBBC. “There is a broad expectation of a strong revival in business and economic activity, particularly from Q2 onwards. As The Economist recently said about the new policy: “This year’s biggest economic event is already underway”.

A week on from China reopening its borders, we review some of the major predictions for China happenings in 2023 from the perspectives of business, the consumer market and travel and tourism.

Consumer market

Consumer confidence in China may have dropped to an all-time low during 2022, but the market has proven to be resilient, and consumer spending is already starting to bounce back at the beginning of 2023. According to the Beijing Municipal Commerce Bureau, during the three-day New Year’s Day holiday, department stores, supermarkets, catering and e-commerce enterprises saw sales reach RMB 3.53 billion, recovering to 83.8% of the same period of last year. The government has emphasised the importance of domestic consumption as a counter to lagging overseas demand for Chinese products and materials amid a global economic downturn.

Once Chinese consumers are out and about again, they will certainly have money to spend, with household savings deposits growing by RMB 14 trillion in the first three quarters of 2022. A McKinsey survey found that 58% of urban households wanted to “put money away for a rainy day,” 9% higher than in 2019.

Tom Simpson, CBBC’s Managing Director of China Operations and Chief China Representative, suggests that we could start to see some of that money being put into retail investments, which could be an opportunity for British financial institutions to offer new products and services.

Overall, the situation is optimistic for British brands going into 2023. According to McKinsey, high-income consumers are spending more across almost all fast-moving consumer goods (FCMG) categories, driven by a growing preference for premium, rather than mass market, products. This will benefit boutique and luxury British brands, especially if their products demonstrate exceptional functionality and high-quality specifications (for example, skincare products with targeted ingredients).

Business and trade

Total trade in goods and services between the UK and China was worth £92.9 billion in 2022. While this figure has contracted slightly during the pandemic (2022 figures were down 1.6% on 2021), it is expected to rebound this year as demand increases in China. The UK’s main exports to China include crude oil, cars, and medicinal and pharmaceutical products.

As China emerges from the pandemic, that last category could be a potential area of growth for UK companies in China. As Simpsons points out, in recent years, there has been a focus by policy-makers and investors on the importance of improving and upgrading the healthcare system in China – something that has only been emphasised by the pressure on hospitals during the Covid surge in December. Moreover, China’s ageing population will increase demand for new and innovative healthcare solutions, in particular monitoring equipment, wearable devices, and other at-home healthcare solutions.

The UK-China trade relationship will also be strengthened by the resumption of in-person business exchanges. “We are already seeing an uptick in interest from our members and partners in visiting China during 2023; and we expect to see a rebound in trade missions and in-person events in China,” says Seaton.

The time is now for your business to get “China ready”. At CBBC we are here and ready to help any company wishing to step forward into the Chinese market and create a strategic plan for your company to enter – Andrew Seaton, Chief Executive, China-Britain Business Council

Simpsons confirms that people based in countries and regions close to China such as Hong Kong are already coming over to catch up with mainland China-based teams and meet partners and stakeholders, but predicts that long-haul travel from the UK to China may only start to pick up in earnest in March/April after the Lianghui (the Two Sessions, the annual meetings of the National People’s Congress (NPC), and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which concludes on 15 March.

Simpson also notes that large-scale political, cultural and sporting events will now gradually resume in China, with the 19th Asian Games in Hangzhou already confirmed for September/October, for example.

Travel and tourism

Domestic travel has rebounded quickly following the lifting of restrictions, which has coincided with the start of the Lunar New Year travel rush, known in China as chunyun. Around 70 million domestic trips were made during the first chunyun weekend on 7-8 January, with each day seeing 40% more trips than the comparable period in 2022.

However, for UK businesses, it is the resumption of international travel to and from China that will have the biggest positive impact. After three years of pandemic restrictions, multiple sources suggest that Chinese people are ready and willing to travel. Search volume for flight tickets on Trip.com reached a three year high just half an hour after the reopening was announced at the end of December. Although some countries – including the UK – have re-imposed Covid testing requirements for travellers arriving from China, Chinese tourists are unlikely to be put off by the need to test having become used to it over the past three years.

Ticket prices will be high in the short-term until flight schedules return to normal, but Simpson predicts the resumption of key flight routes will start in late Q1/early Q2. During the first week of 2023, Air China announced the opening of its Shanghai-Athens route, and the resumption of its Shanghai-Frankfurt route. China Southern has opened its Shenzhen-Amsterdam route, and Hainan Airlines has announced weekly flights between Beijing and Manchester, to name just a few.

To get the most out of China’s reopening, tourism destinations need to be aware of how the priorities of Chinese tourists have shifted since 2020. Gusto Luxe’s Chloe Reuter writes that three of the main Chinese travel trends we can expect to see are an appetite for high-quality wellness experiences, a desire to get out into the great outdoors and a greater awareness of sustainability. Many hotels in holiday resorts like Sanya in Hainan stepped up their offerings in recent years, and Chinese tourists taking their first foreign trip in three years will be looking for premium experiences of comparable quality.

As a result, it will be more important than ever to use Chinese social media platforms — especially currently popular platforms like Xiaohongshu – to showcase your brand’s unique offering and tell authentic, engaging stories.

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Why the sudden change?

The 180-policy reversal seems to have been prompted by three main factors: a major outbreak in Beijing, growing frustration at zero covid (and hard lockdowns in particular) and recognition of the low health risk omicron presents to the population.

A plan to shift away from zero covid was likely already being considered (mostly likely for Spring 2023) but was fast-tracked after covid slipped out of control in Beijing and authorities found they could no longer turn to hard lockdowns. The demonstrations over the weekend of 25-27 November thus played a small but significant role in bringing about the shift in policy by removing hard lockdowns from the policy toolkit.

The economic impact was likely a secondary factor. After all, China has been unflinching in its willingness to weather the economic impact of zero covid over the last three years – and especially so over the course of 2022. The economic issue is also neither new nor surprising (as CBBC members can attest) so doesn’t explain the sudden change of strategy. The preferred approach of the Chinese government would likely have been to weather a few more months of pain to see out the winter, but circumstances had other ideas.

The first post-zero covid wave

With the end of mass testing and the reporting of community cases, it is difficult to get accurate data on infections. However, China is clearly experiencing its first major population-wide wave of covid. Informal surveys conducted by Beijing residents indicate infection rates of between 40-60% of the city’s population within just the last couple of weeks.

We are also hearing reports of companies with cases among as many as 50% of their Beijing staff. Positive infections are now so commonplace in Beijing and across China that people are posting their positive test results on WeChat without any of the fear or stigma previously associated with catching covid. The shift in perception towards covid is staggering to say the least (and certainly very welcome).

Home quarantine is now the standard way for people to recover, with only the most serious cases being admitted to hospitals. Fever clinics have been set up in over 300 hospitals across Beijing, with admissions on Sunday 11 December topping 22,000 according to a report from Caixin.

The authorities are actively discouraging people from calling emergency services or going to hospitals unless necessary. This hasn’t prevented some hospitals from being swamped, although so far it appears that serious cases remain few. State media has also been working in overdrive to shift perception of covid and disrupt the cultural instinct of seeking treatment for mild symptoms at hospitals.

The expectation is that Beijing is a prelude and case numbers will soon surge in other cities across China over the coming weeks with most major cities likely a couple weeks behind. A growing number of cases are already being reporting in Shanghai. Estimates put the peak for this spike in cases at around mid-January, so we are still in the early stages of the first wave.

Dismantling zero covid

The end of zero covid means the dismantling of much of China’s zero covid industrial complex. At one point testing alone was estimated to be 1.3% of GDP. Local governments will be particularly relieved at the easing on their finances, though perhaps not those which have embarked on large zero covid-related investments sprees (e.g., building quarantine centres that are now obsolete).

Testing sites have closed, ‘dabai’ (the nickname for the epidemic prevention and control personnel who wear white hazmat suits) are seeking new employment, the national green code system for tracking travel ended on 13 December (though local HealthKits remain), tests are no longer required for domestic travel, and restrictions on the sale of flu and fever medicines have been lifted. Some restrictions remain, such as 48-hour tests to enter restaurants, bars and gyms.

Much like in the West, the use of home test kits (rapid antigen tests, known in the UK as lateral flow tests) have already become the norm. Sales of flu medicine have naturally spiked along with prices. Procuring medicine has become a challenge, with many left scrambling to get their hands on drugs.

Outlook and implications for UK business

The easing of restrictions is beginning to lift the mood among CBBC members albeit from a sustained period of low sentiment which has persisted since the Shanghai lockdown (March to June). We are unlikely to see a sharp rebound in sentiment but rather a gradual recovery over the coming six months as we get through the first wave of infections and further announcements are made regarding the easing of international travel restrictions.

Coexistence with covid brings a new set of issues for businesses to manage. The risk of infection has increased significantly for UK businesses operating across China as the first major wave makes its way through the population. To mitigate, companies are shifting to flexible working, updating their covid prevention measures, and procuring flu medicine and test kits for their staff.

The easing of restrictions also means the likely return of international travel to China. For the first time since China’s borders closed in March 2020, we believe UK businesses can begin to plan with confidence to visit China during 2023.

Quarantine remains 5+3 (hotel + home) at the time of writing, although we expect this will ease in the coming months, with a full removal of hotel quarantine potentially by the summer. This will likely lead to a sharp uptick in business travel, delegations and tourism. It also bodes well for the prospect of a return to ministerial visits and potentially a resumption of UK-China Government exchanges such as the Economic & Financial Dialogue and JETCO.

The end of zero covid also removes a significant risk factor for business operations and production, logistics and supply chains in particular. Zero covid disruption has been high on the risk index for businesses over the last three years since the initial outbreak, and even as recently as November major companies like Apple were dealing with severe disruption to their supply chains in China.

While we can all breathe a sigh of relief at the end of zero covid, new uncertainty will emerge over the coming weeks and months as cases spike across China. Regardless, the prospect of a return to normality is very much welcome as China begins to reopen and reconnect with the rest of the world.

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On 11 November, the China National Health Commission released a list of 20 adjustments to the country’s Covid-19 prevention and control policies. The adjustments relate to both the domestic-level implementation of Covid policies and international travel, including shortening the length of hotel quarantine for international arrivals and reducing the pre-travel PRC test requirements.

Below are the policy adjustments that relate to international travel:

• The quarantine requirement for inbound travellers has been reduced to 5 days of centralised (i.e., hotel) quarantine plus 3 days of home quarantine (previously 7 days of centralised quarantine and 3 days of ‘home health monitoring’)
• Only one negative nucleic acid test is required within 48 hours of boarding a flight to China
• The circuit breaker mechanism for inbound flights, which saw flights cancelled if they had a certain number of positive Covid cases, has been abolished
• According to the Chinese Embassy in the UK, there are no additional prevention and control requirements for people with uncertain test results, close contacts, a history of Covid infection or suspected symptoms. The above groups can now apply for the health code based on a negative nucleic acid test report within 48 hours before departure.

Read the latest notice on pre-travel testing requirements from the Chinese Embassy in the UK here.

Domestically, quarantine for close contacts was also reduced to 5 days of centralised quarantine plus 3 days of home quarantine. In addition, secondary contacts (close contacts of close contacts) no longer need to be identified. The categorisation of Covid risk areas has been simplified to just “high risk” and “low risk” (i.e., Covid cases present vs no Covid cases present) and mass testing across whole districts or even cities has been discouraged unless the origin of new infections is particularly unclear. The apparent goal of these adjustments is to avoid sweeping lockdowns for one or two Covid cases.

These policy adjustments do seem to make China’s Covid rules slightly less draconian. However, as case numbers increase across China in November 2022, it is likely that the implementation of these policies will vary at the local level, so both domestic and international travellers are cautioned to stay abreast of the latest developments.

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Since late March 2020, China’s borders have been tightened considerably, with the number of travellers entering China dropping sharply.

International flight seat capacity and passenger numbers are down by 95% compared to pre-Covid-19 levels. Thankfully, recent efforts to increase international direct flights with China indicate this figure may begin to recover marginally as more flights are added to existing and new routes. China’s quarantine measures, however, are expected to remain in place for the foreseeable future, and many are understandably put off by the prospect of ten days in a hotel room and the cost of making the journey.

Early Summer of 2022 saw a reduction of China’s quarantine duration from 21 to 10 days, as well as the simplification of the pre-departure testing procedure. Although still a lengthy and expensive process, these changes have helped to encourage those living in China or overseas to take on the journey.

In addition, China has also relaxed its visa rules by removing the requirement for British nationals to acquire PU letters in order to apply for a Z (work), M (business), or F (non-commerce visit – e.g. lecture, research, cultural exchange) visa.

Below is a summary of my experience of travelling to China in late July and early August of 2022. I have written this article in the hope it could be helpful to anyone planning to make a similar trip from the UK to China via a third country (in this case, Germany), although I must stress that experiences can vary greatly depending on which route to China you take. This is also by no means a complete guide and only aims to provide a summary of what I consider to be the key information. I also already had a Chinese visa so I’m not able to offer any first-hand experience of the application process at present.

The information below covers available flights, my experience with the pre-departure and arrival procedures and some tips for quarantine.

What flights to China are available?

I booked a seat on the German Chamber (AHK) charter flight service which operates one-way flights from Frankfurt to Qingdao. My ten-day quarantine subsequently took place in Qingdao. Further details on this service can be found here.

Direct flights between the UK and China had been suspended since Boxing Day 2020 but have now resumed with Air China between Heathrow and Beijing/Shanghai as of August 2022, with other Chinese airlines planning to operate additional routes also. Airlines will start initially by operating flights from China to the UK with return flights expected to resume in due course. For those looking to travel to China I recommend keeping a close eye for further announcements from Air China, Capital Airlines, China Eastern, and China Southern.

Other popular routes for those travelling from the UK to China include flights transiting in Helsinki and Copenhagen as well as flying to Hong Kong and then on to Xiamen or other cities within China. Hong Kong’s reduced quarantine time of three days now makes this option a lot more appealing, as do the lower cost of London to Hong Kong flights when compared to those going to the Mainland. Destinations such as Xiamen and Qingdao also have a good reputation for the standard of quarantine hotels they provide.

International passengers are greeted by a small army of ‘Dabai’ on arrival in China

The pre-departure process

As my journey began in Edinburgh, I had to acquire a Health Declaration Certificate (HDC) before I departed the UK to catch my flight in Germany. On arrival in Frankfurt, I was then required to complete a second HDC application before boarding my flight to Qingdao. Each HDC application required two PCR tests and various other pieces of information such as my flight itinerary, visa, and so on.

Below is a step-by-step summary of the pre-departure process I followed:

1. PCR Test 1 (within 48 hours of departure to transit country): Tests 1 and 2 must be completed by two different covid test companies. In my case, I used Randox and ExpressTest. Both companies have testing sites across the UK. Some test companies can provide a single service with two different test results specifically designed for those who are travelling to China.
2. PCR Test 2 (within 24 hours of departure with a minimum 24-hour gap from Test 1)
3. Health Declaration Certificate 1: Apply for the HDC using the MFA platform once Test 2 is received. The HDC is an orange QR code that will turn green or red depending on the outcome of your application. When filling out the HDC application, make sure to put the correct Chinese Embassy or Consulate branch in the UK according to the region where your tests were completed. If the tests were taken in two different UK regions, then use the embassy/consulate in the region of the first test. The HDC will take around 1-2 hours depending on how busy the embassy or consulate is at the time. Once received, take a screenshot on your phone.

Travel to your transit country (in my case this was Frankfurt).

1. PCR Test 3 (within 48 hours of departure to China)
2. PCR Test 4 (within 24 hours of departure with a minimum of a 24-hour gap from Test 3)
3. Health Declaration Certificate 2: Follow the same process as above. Again, make sure to select the correct Embassy/Consulate branch according to where the tests were completed. In my case, this meant Edinburgh Consulate for my first HDC completed in the UK, and Frankfurt Consulate for the second HDC.

*Note that for the second HDC application I am also aware of people who have travelled from the UK to China via a third country (e.g. Copenhagen) and taken the second pair of PCR tests within a transit period of as little as 8 hours and still received a green code for the second HDC application. The two tests will still need to be taken at different testing sites or by a company that can provide a China-specific service for both tests. Though I haven’t found it anywhere in writing, this suggests the Chinese Ministry of Foreign Affairs may show flexibility on timescales for travellers who are transiting through third countries.

Prior to boarding, the airlines I was flying with asked to see my second green HDC code. I was also asked to complete a Chinese Customs Declaration on my phone. Once completed you will receive a QR code which will need to be shown on arrival, so again, take a screenshot.

The pre-departure process for travel to China has been somewhat streamlined in recent months

What happens upon arrival in China?

On arrival in Qingdao, I had to provide various forms which you can download below. To speed up the process, I recommend printing out these forms and filling them out ahead of your arrival.

1. Transfer Record Sheet of Key Persons for Covid-19 Control (two copies)
2. Informed consent for sampling (one copy)
3. Covid-19 Epidemiological Investigation (one copy)
4. Chinese Customs Declaration QR code (screenshot)

When I arrived at the airport, I was required to take a PCR test, submit the forms above and show the Chinese Customs Declaration QR code before collecting my luggage and being assigned a hotel. The whole process took around three hours. The hotel was a further hour away. On arriving at the hotel, I was asked to provide my onward (home) address in Beijing, where I would travel to after completing my quarantine. The hotel room charges were paid upfront with any additional expenses paid the day before checkout.

What is quarantine in China like?

Quarantine itself was largely uneventful, as you might expect. I would strongly recommend bringing supplies of your favourite coffee, tea, snacks, and whatever you can fit into your luggage. Items I found particularly useful included a cafetière for making fresh coffee and a penknife, as all cutlery provided was disposable. Snacks like Babybel cheese, dried meats, cereal bars and nuts were all greatly appreciated. The food provided by the hotel was better than I was expecting but still, bring what you can. The hotel I stayed at also provided basic toiletries, alcohol wipes and tissues, but I believe this can vary depending on where you stay.

I am writing this article on the final day of quarantine in Qingdao. My Beijing HealthKit QR has already reverted to green ahead of my flight early tomorrow morning. Ahead of checking out of the hotel, I will be given a hardcopy of all my test results and a ‘certificate of completion’ for my ten days of quarantine. Though rather than a congratulatory pat on the back the certificate is to provide proof I have completed the ten days of isolation in case I am challenged at any point.

All in all, it was a smoother experience than I was expecting. A lot of jumping through hoops and admin. The uncertainty of successfully completing four PCR tests and two HDC applications in four days and transiting through busy airports ahead of departure is the biggest downside along with the high cost – though of course worth going through to see family and friends again after two and a half years. The resumption of direct flights will help reduce some of the pre-departure stress and hopefully, with time, begin to reduce the costs involved.

The post How to travel to China in 2022 appeared first on Focus - China Britain Business Council.

The flights are to be operated by Chinese airlines with various routes being considered in addition to Shanghai Pudong-Heathrow and Beijing-Heathrow.

Flights to Heathrow from Beijing will start on 11 August, and flights to Heathrow from Shanghai will start on 13 August.

The flights will operate in accordance with China’s circuit-breaker system with additional flights being added to routes which operate below a permitted number of cases on board.

Please click here for details on Air China’s flights, or visit www.airchina.com to book.

Further routes to be announced soon.

For further enquiries, please email enquiries@cbbc.org.

The post Direct flights between the UK and China resume August 2022 appeared first on Focus - China Britain Business Council.

“Our prevention and control strategy is determined by the Party’s nature and mission, our policies can stand the test of history, our measures are scientific and effective,” said state media after a meeting of the Communist Party’s governing Politburo Standing Committee on May 5th. Reading between the lines: the Party considers Covid to be an existential threat, not just to itself and its rule, but, as far as the government is concerned, the continuation of the Chinese nation-state. That is the logic informing China’s zero Covid strategy, and it goes a long way in explaining why the policy will not be disappearing anytime soon. 

There has been some public debate in China surrounding whether the country should 躺平 (tang ping) or ‘lie flat’, and accept that choosing to live with the virus risks a surge in Omicron cases that would overwhelm China’s intensive care unit capacity by as much as fifteen times. These voices are quickly quashed by the politics, however, as faith in the Party trumps science. 

This Policy Update explains the rationale behind the Party’s decision to stick with a zero Covid strategy while shedding light on how it is changing everyday life in the country. 

Background 

To borrow the smoker’s old adage, defeating Covid is easy, China’s done it many times already. Back in April 2020, for example, air-raid sirens blared and car horns were honked as people took to the streets in jubilation to mark the official end of the Battle to Defend Wuhan. Two years later, as the state media now speaks of further battles to defend Shanghai and Beijing amid a spate of Covid outbreaks in China’s two largest cities, previous declarations of freedom from Covid could start to ring hollow and risk the public wondering whether the Party is suffering from a case of premature emancipation. And looking ahead, if there are more battles in the second half of 2022, the masses may even edge closer to questioning whether President Xi really is the new infallible “Great Helmsman” that propaganda organs are busy positioning him as ahead of his election to an unprecedented third term in the autumn.

There are also compelling scientific reasons for China to maintain a zero Covid strategy. Firstly, some 52 million people over the age of 60 are yet to receive two jabs of the various indigenously-developed vaccines that regulators have approved for use in the country. A fact that is worsened by China having elected not to approve any foreign-developed mRNA vaccines for domestic consumption (the regulators approved two China-made mRNA vaccines to enter clinical trials in April 20224 ), while its Sinopharm and Sinovac vaccines are only as effective as BioNTech’s mRNA vaccine across all age groups after three shots. Secondly, China lacks the intensive care facilities it would likely need to cater for a massive spike in Covid cases. A recent study carried out by researchers at Fudan University models that hospitals would end up at 15.6 times overcapacity, resulting in 1.55 million excess deaths. 

Testing times call for testing measures 

As Shanghai enters its seventh week of hard lockdown, with residents confined to their apartments and those found either to have Covid or be a ‘close contact’ with someone who has, through daily mass testing, being sent to centralised quarantine, commentators are wondering whether what is currently happening in Beijing is indicative of China’s zero Covid future. 

Beijing residents are currently obliged to turn out for testing every day, and there is a requirement to show that a test has been taken in the preceding 48 hours in order to enter any public spaces (people have also been instructed to work at home, while inside dining is no longer permitted, taxis cannot take passengers across district lines, and all non-essential shops have shut). At the time of writing, the city has managed to avoid going into a hard lockdown, and cases hover around 50 per day; people are still free to leave their apartments to go to the supermarket and exercise. 

Tensions are running high in the capital, however. Beijing residents worry that their city could soon succumb to an extended lockdown. On 12th May, fears that the Beijing government was about to announce a three-day lockdown gripped Chinese social media platforms after the start of the city’s daily Covid press conference was delayed by an hour; netizens couldn’t help speculating that the city was going to follow Shanghai down a path where a three- or four-day lockdown turns into a never-ending one. 

Meanwhile, testing appears to have become a part of daily life even in areas that are supposedly Covid-free. Jiangxi Province as well as the cities of Jinan in Shandong Province and Yulin in Shaanxi Province, for example, have all announced that they will test all their citizens on the same schedule as Beijing, even though their respective governments have not reported any cases. Finally, even though life has reportedly returned to normal in Shenzhen after the city exited a lockdown, there is still a requirement to provide proof of a negative test taken in the preceding 72 hours in order to enter public buildings or use public transport.

Economic impact 

The lockdowns are having an enormous impact on the country’s economy, particularly in terms of supply chains, logistics, and the country’s labour force. 

Shanghai is home to one of the world’s busiest ports, yet hundreds of ships are currently anchored off its shores, unable to offload their cargo. Furthermore, even when companies can unload the components they need for manufacturing or the products their customers have ordered, they cannot get the permits required to move them off the dock, across the city, or into other parts of China. Supply chains are under considerable strain nationwide as a result. 

Meanwhile, with lockdowns shuttering factories in city after city, the country’s 300 million migrant workers that comprise the country’s informal economy are locked out of economic life with no alternative other than to go back to their family farms and a subsistence way of living. That is significant because 60% of China’s labour force works within the informal economy, and the unskilled service sector is the fastest-growing part of the country’s labour force as a whole. While it is too early to tell the full extent of the impact of a zero Covid strategy on the country’s economy, it is likely that the informal economy and migrant labourers might feel the effect for years to come, not least because of the influence it will have on industrial productivity. 

China’s Covid end game 

At present, there appears to be no clear way out of Covid for China. The country has not approved foreign mRNA vaccines for use, nor has it socialised the idea of living with the virus among the public. So, how might the government resolve the situation? These are the front runners among China watchers:

• The government very gradually eases the restrictions people are facing without stating that it is abandoning its zero Covid strategy
• After the National Party Congress this Autumn, and President Xi’s election to a third term, the government becomes more relaxed about Covid and eases the restrictions fairly quickly
• The World Health Organization downgrades the status of Covid, declaring the ‘Pandemic’ over 

The CBBC View 

Zero Covid is clearly here to stay, so CBBC has been working actively to support members by: 

• Sending a letter to Minister Wang Wentao of the Ministry of Commerce (MofCom) outlining the specific issues members are facing as a result of the lockdown measures. A copy of the letter was also shared with Mayor Gong Zheng at the Shanghai Municipal Government
• Meeting with the MofCom department for Foreign Direct Investment
• Holding a series of sectoral roundtables considering how the Shanghai lockdown has affected companies in the city and across the country more broadly, and exploring mitigatory measures.

Entering China is a key decision for businesses of all sizes. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can provide you with the platform to unlock your potential.

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Worries about the Chinese economy are mounting. Despite respectable growth of 4.8% for the first quarter, several indicators paint a more sombre picture. Consumption data, in particular, rattled policymakers. In March, the retail sales of consumer goods decreased by 3.5% year-on-year, down from a 6.7% increase in the first two months of the year. 

Last month’s data confirmed Beijing’s concerns. April’s Purchasing Manager Index (PMI) – which measures the Chinese manufacturing sector – dropped to 47.4, the lowest figure since the beginning of the pandemic. Export data, too, weakened in April, growing only 3.9%, the lowest monthly growth since June 2020. 

To stabilise the economy, the Chinese government has issued several guidelines ahead of this year’s Communist Party Congress, which is expected to select President Xi Jinping for a historic third term. Yet while most of the recent announcements targeted infrastructure and job security, it will probably fall – once again – onto China’s strong export sector to save the economy and lead the recovery.

Background 

Though recent figures may still be a far cry from the dramatic slump during China’s first lockdown, the global situation is much less favourable than it was in early 2020. Back then, most countries were just about to enter lengthy lockdowns themselves. Central banks around the globe were switching on the money printers to keep their economies from collapsing, and customers in advanced economies had cash to spend, as they were saving on commuting costs and other expenses. Now the situation is exactly the opposite. Most developed economies have exited lockdowns and are returning to pre-pandemic levels of economic output, monetary supply is tightening, and soaring inflation is squeezing households. 

And it’s not just Chinese policymakers that are worried. Foreign businesses and investors are also growing weary of the country’s economic troubles. A recent flash survey by the European Chamber of Commerce in China (EUCCC) showed that nearly 60% of participating companies had reduced their revenue predictions for 2022, and about a quarter were considering shifting investment to other markets. In February and March, foreign investors pulled out of RMB 193 billion (£23.3 billion) worth of Chinese bonds – the greatest outflows since the beginning of China’s bond market. At the same time, early-stage investment by VCs declined by 90% year-on-year in the first quarter of 2022. 

To reverse the trend, the Chinese government has released a series of policy guidelines to stabilise the economy. Four areas are crucial: infrastructure, domestic consumption, jobs and trade. This update will look at each of them and highlight the key challenges.

Year-on-year retail sales growth (left) and 2019-2022 official manufacturing PMI (right) (Source: National Bureau of Statistics)

Infrastructure 

Since the financial crisis in 2008, infrastructure spending has been the default lever for Chinese policymakers to stimulate growth. So it didn’t come as a surprise when, on 26 April 2022, the Central Committee for Financial and Economic Affairs – the Party organ overseeing economic and financial policy – announced a slew of new measures to speed up infrastructure spending across the country. 

Most of the areas targeted relate to logistical choke points like transport networks and waterways. Logistics and supply chains were a natural victim of lockdowns with truck traffic in March 2021 dropping to 40% of normal levels. In Shanghai, traffic plummeted even further to only 15%, according to the South China Morning Post. Other areas of investment include 5G networks, renewable energy and data centres.

Improving transport links and investing in next-gen technologies, therefore, certainly makes sense. However, speeding up infrastructure spending now also means that many of the RMB 14.8 trillion yuan (£1.8 trillion) worth of planned projects will be front-loaded. This could boost growth now but lead to weaker economic activity later this year. 

Consumption 

Besides infrastructure spending, stimulating consumption is another top priority. In a strategy paper on domestic consumption published on 25 April, Covid takes the top spot. The paper outlines several measures the government should take to alleviate the damage caused by the recent lockdowns: 

• Reduce taxes and fees
• Ease access to financing and bank loans
• Suspend interest payments and fee collection (e.g. rents, electricity bills)
• Offer special support measures for retail, hospitality and tourism sectors
• Optimise online service innovation to allow businesses to stay open during lockdowns

The policies outlined here are in line with the measures taken during the previous lockdown in 2020 and conform to the Chinese government’s general emphasis on ‘supply side’ measures to support the economy. 

It remains questionable, however, whether they will be enough to ensure a speedy recovery once the lockdowns are lifted. Official data from 2020 shows that retail and hospitality sectors took much longer to recover than manufacturing, which returned to positive growth in April 2020. Retail sales, on the other hand, did not recover until August 2020. 

A recent mobility heat map shared by Natixis – a French investment bank – also indicates that it might take longer for a return to normal than in 2020. According to Natixis’s calculations, mobility across China was below the 2019 average in May for the third month in a row. By contrast, in 2020, mobility levels had returned to growth after only two months.

Employment 

Related to both infrastructure and consumption is, of course, employment. Job creation was a major theme in this year’s Two Sessions and was highlighted as a particular challenge by Premier Li Keqiang himself during his press conference at the end of the annual meeting in March. 

According to the latest data, jobs did indeed take a hit during the latest lockdown round. Urban employment rose to 6.1% in April 2022, the highest level since February 2020. More worryingly, the impact of lockdowns is now compounded by a series of long-term effects, such as the recent wave of redundancies made by China’s tech giants. According to TechNode, nearly 73,000 tech employees lost their jobs between July 2021 and mid-April 2022. 

Although current lockdown measures can probably provide occupation for some unemployed workers, the situation is expected to become graver the longer the current lockdowns last. In a statement published on 7 May, Premier Li Keqiang has warned provincial leaders of a grim outlook for China’s job market and has urged policymakers to do everything they can to ensure stable employment. 

Yet whether the country can – in fact – achieve its self-set goal of 11 million new urban jobs this year, will also depend on whether it can get China’s export machine back on track.

National mobility levels since 2020 (left) and industrial production and retail sales growth in 2020 (right) (Source: Natixis, National Bureau of Statistics)

Trade 

Chinese exports were undoubtedly the main engine of the country’s post-Wuhan-lockdown recovery. Outbound shipments soared 29.9% year-on-year to a historic level of USD 3.3 trillion (~£2.7 trillion) last year. So, given their preeminent role during the recovery, the drop in exports compared to the previous month is clearly worrying. Even though the value of exports in April – USD 273.6 billion versus USD 276.1 billion in March – remained comfortably above pre-pandemic levels, the timing of the slowdown comes at an unfortunate moment. 

As the Chinese business magazine Caixin reported, the lockdown is hitting season-sensitive industries like textile manufacturers – many of which are concentrated in the Yangtze River Delta – particularly hard. One producer told Caixin that if restrictions weren’t loosened before the end of May, his company might lose out on orders for the rest of the year, meaning that exports could suffer for the whole of 2022. 

What makes the situation worse for these industries is that other labour-intensive and export-oriented economies such as Vietnam and Indonesia are already exiting their own lockdowns and are increasing export volumes. This could accelerate the already existing offshoring trend among some Chinese industries towards lower-income countries. In this case, some jobs would then be gone for good. 

While China’s overall export levels will probably remain above pre-Covid levels this year, the potential long-term damage for Chinese exporters – and the related negative knock-on effects on employment – will put growing pressure on Chinese policymakers to find a viable exit strategy for its current Covid policy.

The CBBC View 

Getting the economy back on track will be one of the major tasks for the Chinese government in the coming months. Although there is still a huge amount of uncertainty regarding the country’s inflexible Zero Covid policy, CBBC expects economic recovery to take precedence over harsh lockdowns and quarantine rules. 

Although the current focus is mostly on infrastructure spending and consumption, we also expect that manufacturing and exports – and not domestic retail – will once again play the role of the workhorse for China’s recovery. Past experience and recent mobility data suggest that Chinese consumers will probably remain cautious and fearful of further lockdowns. It might therefore take even longer for retail levels to recover than in 2020. 

It is also worth noting that an economic recovery entails its own risks. First, there is inflation. At 2.5%, China’s CPI in April remained far below the price increases seen in North America and Europe. Without the deflationary pressure of lockdowns, however, Chinese consumers could thus be faced with similar price hikes, especially as Chinese factory prices have been consistently more than 10% higher than last year’s numbers over the last couple of months. 

And then there are jobs. The already high unemployment rate might further rise especially as tax holidays for Chinese SMEs are supposed to end in June. It is also likely that current lockdown measures mask some of the unemployment as jobless workers are mobilised to testing and quarantine facilities. 

Given these risks, it is to be expected that the Chinese government will extend tax and social insurance fee holidays beyond June and potentially launch yet another stimulus package in the second half of the year.

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