19th May 2022 – SEB’s China Financial Index, which measures the business outlook among northern European companies’ subsidiaries in China, fell to 54.9 in the spring of 2022 from 60.2 in the autumn and 61.3 one year ago. That marks the third consecutive drop in the semi-annual survey, and the lowest index level since the beginning of the COVID-19 pandemic two years ago. Still, the index remains above 50, which means the overall outlook for doing business in China remains positive.
In the spring survey, all individual index components decreased. Optimism regarding profitability and staffing fell the most, by 7.7 and 5.3 index points to 49.6 and 56.1 respectively, as a crunch in supply chains coupled with lockdowns and preventative measures in response to COVID-19 are impacting companies’ ability to operate. As growth outlooks have gradually come down, the order intake index continued to fall and the number of respondents expecting negative top-line growth over the next six months increased, yet this is not surprising if one considers the strong performance in 2020 and 2021 and that the world economy becomes more balanced as the is world gradually opening up. Companies’ view on investments also worsened slightly, and one of the impacts of the resurgence in COVID-19 cases and measures taken in response to that development is that 37 percent reply that they are delaying or halting investments for now.
As China and especially Shanghai are currently battling their largest COVID-19 outbreak since 2020, epidemic-related restrictions are continuing to have an impact on foreign companies’ operations in China. As such, the latest China Financial Index contains no big surprises,” says Thilo L. Zimmermann, General Manager of SEB Shanghai. “Optimism still prevails but we can see corporates taking a slightly more cautious approach to their investments in China. Hardest hit might be the expat population going forward, which is currently experiencing an exodus.”
Almost 100 percent of the survey respondents lists supply chain disruptions as one of the main impacts following the measures imposed in several cities and provinces in China in response to the recent virus outbreak. What’s more, about 50 percent of the respondents are adjusting their business plans and their budgets as a result, while 37 percent are delaying and halting investments. Of the Shanghai-based respondents, 44 percent expect the lockdown to result in a full-year decrease in sales of between 10 and 20 percent compared to 2021.
As for the key concerns over the next six months, supply chain disruption continues to reign as the biggest one. A total of 71 percent of the respondents stated this as the main concern, while around 20 percent are most concerned about customer demand. Already congested supply chains are being increasingly stretched due to the COVID-19 related lockdowns and this will spill over to global supply chains and add to inflation.