As of this day, the two main sides of Shanghai (west of the Huangpu River, called Puxi, and east of the river, Pudong) are under various forms of lockdown to counter the spread of the Omicron variant of Covid-19. Our team members in Shanghai are all under different forms of lockdown depending on the areas they live in.
The Lockdown Situation
The official notification of the lockdown by the Shanghai Pneumonia Prevention & Control Office states (in short) that the city is divided into different levels of lockdown severity [1], which are:
- Closed (complete lockdown for 14 days when a case is found in the building)
- Control (medium lockdown for 7 days when a case is found in an adjacent area)
- Prevention (low self-lockdown for 7 days when no cases are found)
The situation is dynamic. Lockdowns can be increased and extended depending on the cases found.
Naturally, this is a significant challenge for a city of 26 million people and a major commercial hub. A great number of volunteers have stepped forward to help. Testing centers have been set up in each area. Regardless, there is quite a lot of confusion. Many people don’t receive accurate information if any. Others face problems because they suddenly cannot receive deliveries or cannot get to the hospitals for pre-existing conditions.
Business Implications
For business, this lockdown is most unfortunate and affects almost all companies. Retail shops, malls, F&B, and tourism are once again shut down. Production and logistics are affected. Shenzhen, which was shut down earlier in March, as well as Shanghai and surrounding cities like Suzhou, Hangzhou, and Ningbo are key production and export areas. In a flash survey by AmCham Shanghai on the business effects of Covid, the following statistics were presented based on the responding companies [2]:
- Production: 60% reported slowed or reduced production.
- Supply Chains: 57% reported disrupted supply chains.
- Revenues: 54% reported decreases in 2022 revenue projections.
- Investment: 29% reported delayed investments, and 49% reported intention to reduce investment if China’s Covid-19 restrictions remain into the next year.
- Foreign Staff: 81% reported difficulty to attract and retain skilled foreign staff, of which 35% described the impact as large or severe.
But it is also important to keep in mind that these lockdowns come on top of existing travel restrictions. These are mainly international travel restrictions. Inbound travel to China is severely hampered by the difficulty to get visas (including business visas), limited flights, high ticket prices, and 3 weeks of quarantine on arrival in China. These travel restrictions have been in place since early 2020.
Over the last 2 years, these restrictions have protected China from the spread of Covid that the rest of the world has seen, however, it has also severely affected businesses. Every company that operates between the US, EU, and China has been affected. Managers have not been able to meet their teams. Directors have not been able to meet partners. New business relationships have been difficult to develop over Zoom calls.
Our View
So, what now? In our experience as a company that has, more or less, been born during COVID while also executing 17 Asia expansions over the last 3 years, this challenge can be overcome. However, it requires the usage of technology like Zoom for efficient communication between teams inside and outside China. Trust needs to be created by consistent communication and deliverables.
However, “running the business” is not enough. Globally leading companies need to consistently move forward on three fronts: revenue growth, strategic positioning, and local footprint. This requires the combined application of local staff, network engagement, and dealmaking capabilities. During travel restrictions and lockdowns, that is difficult to achieve, but it can be done. And, if the past 3 years have taught us anything, it is that we cannot wait for Covid measures to end but need to make rapid adjustments to deal with the new situation and keep expanding.
Closure
In closing, we hope that these lockdowns end soon, especially for people in need or with pre-existing conditions. In regard to China cross-border business, yes this is a drag, but there are ways to move forward, and the most important thing is to keep moving forward.
[1] Shanghai Pneumonia Prevention and Control Office: About the prevention and control plan after the new round of nucleic acid screening and regional control.
[2] www.amcham-shanghai.org: AmCham Shanghai and AmCham China Joint Survey on COVID-19 Business Impact