Jörg Wuttke, the president of the EU Chamber of Commerce in China, says that the “allure of China” is waning, as foreign businesses consider their options for new investments.

“The Covid-19 lockdowns have generated a new form of unpredictability for foreign companies doing business in China”, he says in an interview with fDi Intelligence. “For the first time, multinationals are looking at how predictable China is and how secure their investments are there."

“Though data protectionism and cybersecurity had already forced many to decouple from China, now with the Covid-19 lockdown in Shanghai and elsewhere, there is a new dimension to this unpredictability.” he says.

Some 60% of European respondents to an EU Chamber of Commerce flash survey in May decreased their 2022 revenue forecasts in China, and 23% of respondents said they are considering moving investments out of China altogether — more than double the number stating this just two months ago and the highest percentage recorded in the past decade.

“The Americans, the Germans and the French have done these surveys, but whoever does it latest has a grimmer story to tell,” Mr Wuttke says, as the Shanghai city-wide lockdown and other partial lockdowns take their toll. He expects this pessimism to continue into 2023.

As a result, European companies are putting their operations on pause, he says, and as far as new opportunities are concerned, some are looking at scenario planning in southeast Asia.

However, “at this stage we have not seen European companies leaving”, Mr Wuttke says, conceding that some European law firms have left following the tech crackdown last year, and European logistics companies have also left in the wake of the Ukraine war. He was unable to comment further.

Companies from other regions are also reassessing the future of their Chinese operations.  

US vacation rental company Airbnb announced via its WeChat account on May 24 that it will suspend its operations in China from July 30 onwards. A source familiar with the situation told fDi that Airbnb’s domestic business in China was “costly and complex to operate”, while Covid-19 “worsened these issues and heightened their impact”.

South Korean multinational conglomerate, Lotte, has also said that it will close its China headquarters this year, according to an article published on May 23 in The Korea Times. Lotte will focus instead on expanding in southeast Asia, such as in Vietnam, Indonesia and Malaysia.

In the first quarter of 2022, China tracked its lowest first quarter in greenfield FDI on record, according to fDi Markets. This follows greenfield FDI projects falling to historic lows since the start of the pandemic. 

In March, US tech giant Microsoft launched its fifth Azure region to the China market, doubling the capacity of its intelligent cloud portfolio in China.

According to official Chinese government data, the actual use of foreign capital jumped by 26.1% year-on-year in the first four months of 2022 reaching $74.5bn, with the high-tech industry driving much of this investment attraction.