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As business sentiment takes a further beating in China, what is in store for the world's second largest economy?

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Chinese President Xi Jinping

Businesses in China have been braving uncertainties for the last two years since the outbreak of the Covid 19 pandemic but many analysts are now saying that things are gradually getting out of hand.

Intermittent disruptions and knee jerk policy action by Beijing have led to a sharp slowdown in the country’s economic growth leading to a panic-like situation for many companies. Unemployment is also rising.

Sample this. Taiwanese major Foxconn, one of Apple’s biggest suppliers, has announced suspension of recruitment at its manufacturing complex in the central Chinese city of Zhengzhou “after the local government imposed a seven-day lockdown as part of Covid-19 control measures.”

Business sentiments in China, already battered after the outbreak of the pandemic and the subsequent regulatory crackdowns, have been further dented amid “extreme uncertainty.”

"China is now facing a real problem. Even as the country is known for its quick action and solutions which have helped in attracting investments from across the globe, the current scenario and arbitrary policy measures have started pinching like never before," an analyst told India Narrative.  

Earlier, a local magazine That’s Shanghai reported that 85 per cent of the foreigners who were surveyed in the country’s commercial hub were rethinking their future in China while 48 per cent had plans to leave. However, the news page covering the survey appears to have been censored and cannot be accessed anymore.  

Recently, Chinese Premier Li Keqiang admitted that the employment outlook will remain challenging and that immediate focus needs to be directed towards job stability.

“The risk seems to be increasing, and the unknowns are also increasing and you’re looking at bottom lines and the future of things, and you’re wondering what to do,” Voice of America quoted Doug Barry, communications vice president with the U.S.-China Business Council as saying. Several business operations have come to a complete halt.

Exports slowing

China’s exports growth in April slowed down to a mere 3.7 per cent compared to a year earlier to $273.6 billion, down from 14.7 per cent recorded in March. This is the lowest since June 2020.

“The worry for many manufacturers is that exports are unlikely to take off immediately as Beijing continues with the zero Covid policy,” a mid-sized exporter based in China told India Narrative. Though China’s economy in the January-March quarter grew at 4.8 per cent, the Covid related restrictions now threaten to dampen the growth story further.

Business sentiments down since 2020

Business environment has rapidly changed in China in the last two years. Beijing imposed stringent restrictions in 2020 with a view to containing the spread of the virus. But soon after that Chinese President Xi Jinping’s ugly face-off with the country’s self-made billionaire entrepreneur Jack Ma and the subsequent clampdown on the country’s private sector grabbed headlines. Last year, several global companies complained of an increasingly challenging business and legal environment. A host of tech companies including biggies such as Yahoo Inc and LinkedIn said they were relooking at their business strategies after the Personal Information Protection Law was brought in from November 1. The law is aimed at limiting information gathering as well as storing.

However, companies will not exit China en masse as many reports have suggested. "We have to understand that the notion that China is the only attractive investment destination will not hold any more, but will this mean that companies will shut shop? The answer is no..they will look at diversification of supply chains," an entrepreneur of a  mid sized manufacturing unit, which has operations in China said.

“The Chinese authorities are aware of the problems and once they identify them, they resolve the issues..most companies therefore after the initial hiccup may prefer to stay on,” he added.

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