China 2022: Business under Dynamic Covid-zero Policy

Geopolitics is a subject as sensitive as it is dynamic; we can see it in the news every day. An alliance that seemed ideal yesterday may already be completely undesirable tomorrow. How do we keep things in balance as a continent, as a country or even as a region? How do companies deal with this? To find out, Dr. Yuxi Nie puts the magnifying glass on the relationship between Brainport Eindhoven – which, as a high-tech region, is extremely sensitive to the consequences of geopolitics – and China. In a series of articles, she keeps us informed of the progress of her research, which aims to devise effective communication strategies for Brainport. Today part 3. Read the other episodes here.

By Yuxi Nie 

2022 seems to be bringing us more puzzles on China’s business environment. There has been an increasing sense of uneasiness from business professionals and entrepreneurs towards the changes in China in several aspects, including the tough regulations on the tech and education industries, the dynamic Covid-zero policy, the travel restrictions, and the country’s plan to unify its national market. Under the strict and increasingly questioned travel restrictions, the plan to achieve a unified national market creates more ambiguity.  Titled “the Opinions on Accelerating the Construction of the National Unified Market”, it is released by the state council and the central committee of the Communist Party in April 2022, indicating tightened control of domestic consumption and production through strengthened nationwide standards and regulations.

Looking at China in 2022, many businesses no longer seem to have a confident grip on the country’s policies, the leadership’s intentions, and the drives behind them. During my interviews with organizational leaders and business professionals, many agree that China’s approach to the Covid-19 pandemic has worked quite well for the country until Omicron’s spread in 2022. 

“During the eight years of my life in China, I felt that together with colleagues, we were witnessing China going through a kind of incredible evolution,” says the former business consultant Robert van Aert in our conversation, “However, the political, social and business environment was already turning around, even before Covid. To do business, you need both stability and clarity, which seem to be lacking right now.” Mr. van Aert points out that it is hard for companies to do business in China with the country’s Covid-zero policy and travel restrictions: “This is especially the case for the SMEs. To maintain long-term business relations, you need to meet face to face sometimes. In the last three years, you could use digital tools to communicate, but at some point, you would talk to your partners in China and say, ‘hope to meet you there’ or ‘welcome to visit us here’.”

As the beneficiary of globalization, China’s growing economy has been a crucial factor for the state and the party to legitimize and reinforce their position and policies. China’s growing middle class has been the evidence of the system’s achievement and in turn, the state and the party receive their support. In the last decade, the state’s continuous going-out policy, the establishment of the AIIB (Asian Infrastructure Investment Bank), and the BRI (Belt and Road Initiative), supposedly aim to strengthen China’s role as an active, open and powerful global trading partner. 

However, with the current Covid-zero policy, travel restrictions and increasingly strict regulations in the domestic market, some may even argue that China is “closing the shop”.  Is there another agenda from the top-down? Will it become the new normal? Dr. Dominik Mierzejewski argues that the current decisions signal the Chinese leadership’s preparations for the global economic recession and political turbulences. In his article for China Institute, University of London, he writes: “From a global economic perspective, we are accustomed to seeing China as a “shareholder” in globalization. However, as a result of the trade war with the United States, the Chinese side has opted for a dual-circulation economy, i.e. a de facto increase in economic self-sufficiency while attempting to be less dependent on Western technological resources. It also allows China to ready itself for any future scenarios involving sanctions.”

With the relentless lock-down measures in major cities, and strict control on traveling across provinces and overseas, many Chinese entrepreneurs have expressed an attitude of “lying flat” (tang ping in Chinese, a term to describe a low-desire attitude towards life as a form of social movement) towards every day changing measures and temporarily switch to survival mode. 

“It is not just a matter of physical distance from each other,” says Vicky Peng, the founder of Multilink. Having worked in a Chinese tech company as the overseas sales director, Miss Peng explains that the travel restrictions not only affect the international supply chain but also discourage the overall business sentiment. “Entrepreneurs need incentives and space to grow. The current situation is quite disruptive to the balance of supply and demand.”

For now, many are anticipating the 20^th National Congress in Beijing held by the Communist Party to provide more clarity on whether China would “re-open” to the world. Electing the central committee members, the congress will be held in the second half of 2022 and it decides whether Chinese president Xi Jinping will be re-elected. Once the domestic political structure is all set and still, will the economy follow? If so, this again confirms the various research findings suggesting that China can be extremely adaptive in its economic system under its strictly controlled political and ideological environment. Politics is the precondition of the economy. 

It has definitely taken its turns. 

Together with Miss Zhou Mengjuan, project manager from Brabant Development Agency (BOM), we look at the impact of China’s Covid-zero policy on business from two aspects: 1). Dutch business going out and 2). Chinese business coming in. 

Miss Zhou is responsible for projects related to China. Together with her colleagues, they organize events to connect companies in Brabant Region with potential Chinese partners. Their clients cover agricultural, technological, health, and new energy industries. They are currently shifting their focus on businesses in the field of big data and artificial intelligence. 

Regarding Dutch business going out, at the beginning of the Covid outbreak in 2019, Miss Zhou and colleagues at BOM organized a business tour in China for the Dutch companies. However, just traveling there once is not enough to establish solid business relations. They then tried to arrange for Chinese companies to come to the Netherlands for a visit, which turned out not doable due to the Covid restrictions. In 2020 and 2021, many Dutch businesses still were hoping to go to China, but obtaining a traveling visa has been a challenge. 

“In 2021, we did help some entrepreneurs to go to China and helped with their visa application process. In general, they felt other than the two weeks quarantine, traveling to China was quite alright. At the moment, we felt that the number of Dutch companies who came to us for advice has decreased significantly. In fact, many Dutch companies are thinking of moving their business plans to other Asian countries,” says Miss Zhou. 

In contrast, for Chinese businesses coming here, at the beginning of 2020, there were fewer companies from China who came to BOM for advice. However, from 2021, many more Chinese businesses actually were interested to enter the market here in the Netherlands. 

In the first half-year of 2022, “each month there is at least one Chinese company coming to us for consultation,” says Miss Zhou. “Since Shanghai’s lockdown in 2022, companies started to calculate more carefully on their cost (profit-wise and time-wise) when doing international business.”

“One way or another, we will meet our counterparts. After many years of increasing internationalization, we have now entered a time of increased protectionism from both sides. In the long run, however, we in the West will have to adapt more to the East (and mostly China) than they will have to do to us.”

Ronnie Kuppens, Project manager Brainport Development, 2022

During my conversation with Ronnie Kuppens, project manager at Brainport Development, we reminisced the “good old times” in China. We talked about the wonderful city vibes in Shanghai, Chengdu, and Xi’an, the locals’ and expats’ life and experiences. We talked about food and our Chinese families. Used to be very positive about China and its embracing of internationalization, Mr. Kuppens has become skeptic over the last couple of years.  At Brainport Development, Mr. Kuppens and colleagues organize regular China-related business events. Since 2021, the companies have shown less interest in participating in these events. Restricted by the covid-zero policy, many companies who were considering doing business in China have currently put their plans on hold. 

“China is still an exciting place for Dutch companies, but at this point, it is nearly impossible to go to China. For those Dutch companies who are already in China, they are sort of keeping low-key business activities and localizing even further in their China businesses. However, this does not mean that there will be fewer businesses between the Netherlands and China. China is one of the strongest economies in the world. If Dutch companies retreat from China or avoid doing business in China, it is no question that Chinese companies will come to the Netherlands, particularly the ones in the tech and innovation field. Often backed by stronger financial resources, the Chinese counterparts will be competitors.”

Mr. Kuppens advises Dutch companies to come up with backup plans in both the short and long term: “If you are planning to do business in China, hold your horses and wait it out. If China’s Covid-zero policy eases down, then you can pick up your plans. If China is no longer the desired place to expand your business, then you must prepare yourself to meet both your Chinese competitors and partners here in the near future.”

Holding a more optimistic view, diplomat Andy Rothman believes that the Chinese government is generally pragmatic when it comes to economic policy, and the recent public talks from premier Li Keqiang signal a return to pragmatism: “I am not giving up hope that the government will return to pragmatism when it comes to dealing with Covid, which will then allow the economy to bounce back.” 

As for the future, we shall see. Nevertheless, business relations are too not different than any other forms of personal relationships. It needs to be maintained and nurtured. It surely takes perseverance and investment at good times and bad times. As the Chinese phrase “你来我往” (nilai wowang, translated as “you come here and I go there”.) virtually describes it, a reciprocal relationship requires communication and exchange from both sides. Despite the difficulties with the current Covid-zero policy, business professionals and entrepreneurs cannot leave their relationships as they are and expect that once Covid restrictions are lifted someday, their partners in another country will still be there waiting. 

Dr. Yuxi Nie is a researcher-lecturer at Fontys University of Applied Sciences, executing the research project “Towards a communicative strategy that guides Brainport companies to do business with China in a growing digital business context”. Business relations between Brainport organizations and their partners based in China have been growing rapidly. Probing the geo-political, intercultural and digital challenges, this project explores the Sino-Dutch corporate communicative strategies and aims to develop effective communication strategies for organizations in Brainport. This two-year Hbo-postdoc project started in 2022 and is funded by Regieorgaan SIA, part of NWO, the Dutch Research Council.