China aims to stabilise foreign trade, allay investor fears as Premier Li issues call to action

China will unblock international airline routes and increase both domestic and international flights in an orderly manner, Li Keqiang vows
Comments come as criticism has been mounting over economic fallout and ramifications of Beijing sticking with stringent coronavirus-control measures

China's economic recovery

Luna Sunin Beijing

Published: 9:00pm, 26 May 2022

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After recent surveys by foreign business groups painted a grim picture of waning confidence and an exodus of business and investment amid China’s strict zero-Covid policy, the nation’s premier spoke to some of their concerns on Wednesday.

Stabilising foreign trade and further opening up China to international markets were among Li Keqiang’s talking points during an all-hands-on-deck teleconference with more than 100,000 bureaucrats from across the country.

“The 8.1 per cent growth of China’s economy last year was largely driven by foreign trade,” Li said, according to a transcript of his speech that was verified by officials who attended the meeting.

“This year, we are met with sharply worsening difficulties amid changing climates, but we must recognise that 70 per cent of our manufacturing relies on imported parts, and that foreign trade generates direct and indirect jobs for 180 million people.”

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His comments came as criticism has been mounting over the economic fallout and ramifications of Beijing steadfastly sticking to its stringent coronavirus-control measures in the face of various headwinds, both internal and external.

“In any case, we still have to explore the international market and promote imports,” Li said.

China’s economy is stalling at a dangerous rate as lockdowns and stringent travel restrictions prevail under the country’s zero-Covid policy. Foreign businesses in the world’s second-largest economy have also been struggling with logistics bottlenecks worsened by the domestic lockdowns and international travel restrictions.

Travel restrictions are another major obstacle facing foreign companies, as entering the country still requires at least three weeks in quarantine upon arrival.

Li addressed the issue at Wednesday’s meeting by saying China must unblock international airline routes and increase domestic and international flights in an orderly manner, as well as formulate arrangements to facilitate the travel and exchange of personnel from foreign companies.

As lockdowns in Shanghai still have not been fully lifted, casting a lingering shadow over the sluggish national economy, concerns are rising that the nation’s second-quarter gross domestic product (GDP) could take a big hit.

Beijing this week vowed an array of relief measures in an effort to reassure coronavirus-hit businesses and boost consumption, but some experts argue that little will improve as long as draconian control policies remain in place.

“One question that must be answered [for China’s economic recovery] is what are the core drivers of China’s economy, and what creates markets and demands,” said Chen Gong, founder of the Ambound independent think tank. And one answer, he said, is foreign investment.

China has seen a rising number of foreign businesses and investors leaving China in recent months, especially following Shanghai’s lockdowns. The recent surveys by major business lobby groups have suggested that heavy-handed coronavirus curbs are undermining foreign investor confidence.

Foreign investment in China will likely decline … and that’s probably why the government wants to send a clear message to stabilise foreign business confidence

Tommy Wu, Oxford Economics

And it appears that “capital outflows have been quite significant”, according to Tommy Wu, lead economist at Oxford Economics.

“Foreign investors have been reducing their holdings of Chinese assets, and some foreign companies might have moved parts of their production lines to Southeast Asian countries,” he said. “The magnitude of disruption to production and sales caused by Covid restrictions was unseen before the prolonged Shanghai lockdown, so foreign businesses now worry about the risk of future lockdowns and disruptions, especially given that there is no end in sight for China’s zero-Covid policy.

“Foreign investment in China will likely decline as a result, and that’s probably why the government wants to send a clear message to stabilise foreign business confidence.”

On Thursday, the State Council, China’s cabinet, issued guidelines on stabilising foreign trade and the logistics chain. They cover 13 measures, including unblocking ports and streamlining the shipping process, as well as supporting trade companies to develop and explore a range of business opportunities.

China’s foreign firms decry ‘rapidly mounting’ costs of zero-Covid measures

A German Chamber of Commerce survey earlier this month showed that 28 per cent of foreign employees from 460 firms were planning to leave China due to coronavirus-related measures. And 23 per cent of companies polled by the European Chamber of Commerce in China said they were considering shifting their current or planned investments out of the country due to Covid-19 controls.

A recent survey by the American Chamber of Commerce also showed that more than half of respondents had already either delayed or decreased their investments in China.

“We must expand the flow of talented personnel and shouldn’t discriminate against foreign companies,” said He Weiwen, a senior fellow at the Centre for China and Globalisation, a non-government think tank, adding that “we need to place particular emphasis on facilitating communication with them”.

Additional reporting by Orange Wang