British Business in China:
Post-COVID Recovery Survey 2023
The British Chamber of Commerce in China conducted a ‘Post-COVID Recovery Survey’ in order to pulse the impact of China’s shift away from dynamic zero-COVID controls has had on British businesses and their outlook of the China market. This survey, conducted between 4 April and 17 April 2023, received over 110 responses, from start-ups (6%) and SMEs (51%) to multinational corporations (43%), and represents the views of British businesses in China operating across the country and in a variety of different industries. It provides a clear picture of the shift in sentiment pre- and post reopening, as well as the impact that COVID-19 has had on revenue projections, attitudes, and investment plans for the coming years in China.
- Prior to reopening, 43% of businesses report having a pessimistic outlook for the 2023 financial year. The results show a significant shift in this following reopening, with 76% reporting being more optimistic in their outlook following China’s announcement of relaxation on restrictions.
- Greater access to international and domestic travel is driving this optimism, alongside greater opportunities for client engagement in China.
- 84% of respondents reported that China remains an important part of their businesses’ long-term (5 years and beyond) strategy although, of those, 27% are unsure about their long-term outlook for their sector in the Chinese market.
- The next biggest challenges that businesses expect to face post COVID:
- 1. Geopolitical issues (90% – ranging from US-China relations, UK-China relations, Taiwan / Strait relations, Russia-Ukraine war)
- 1. 地缘政治问题（90% – 包括中美关系、中英关系、台海关系、俄乌冲突）
- 2. Navigating regulatory uncertainty (67% – uncertainty and lack of transparency in China’s regulatory environment, compliance with local laws and regulations, navigating China’s data security regulations including on cross-border data transfers)
- 2. 监管不确定性（67% – 中国的监管环境存在不确定和不透明性，在遵守地方法律法规，遵守中国的数据安全规定，例如跨境数据传输规定等方面尚存在不确定性）
- 3. Economic prospects (63% – both China’s economic prospects, and global economic prospects)
- 3. 经济前景（63% – 中国经济前景和全球经济前景）
- Participants remain divided about the future of China’s economic outlook.
A more optimistic outlook
COVID-19 had significant impacts for foreign businesses operating in China. In our British Business in China: COVID-19 Impact Report, April 2022, 98% of businesses reported a negative impact to their operations: with 32% of respondents reporting very severe impacts, 42% reporting a large impact and 24% reporting a small impact.
The results from our Post-COVID Recovery Survey indicate a significant shift of sentiment amongst foreign businesses operating in China. 43% of respondents reported they were pessimistic prior to China’s announcement of its reopening, with only 21% optimistic in their outlook. Post-reopening, 76% of respondents reported more optimism in their outlooks with 60% of businesses reporting being ‘somewhat more optimistic’ about the new business environment, and 16% ‘significantly more optimistic’.
This optimism is no doubt, in part, driven by reports of increasing revenue. Of those who were more optimistic, 26% reported that their revenue had already returned to pre-pandemic levels in 2022 and 24% expect for this to occur at some point within this fiscal year. The majority expect their revenue to return to pre-pandemic levels by the end of 2024 (28%).
Drivers of optimism
In April 2022, our COVID-19 Impact Report highlighted that travel restrictions were a primary concern for British businesses: 43% of businesses reported that essential staff were unable to travel within China and 69% reported that COVID-19 related travel restrictions had negatively impacted their ability to recruit foreign talent. It is therefore unsurprising that the primary driver for increasing optimism in 2023 stems from the government’s decision to relax restrictions on travel, with 59% of those reporting a more positive outlook attributing this to easier domestic and international travel. This is closely linked to the value that businesses’ place on the ability to establish new client relationships, reaffirmed by 51% of respondents from that same sample.
The long-term outlook
Positive sentiment amongst British businesses also appears to be extending into a largely optimistic long-term outlook, with 63% of participants reporting that they have an ‘optimistic long-term outlook’ for the future of their sector in China. This is higher amongst those respondents who report being more optimistic following reopening (75%), however 22% are unsure about the long-term.
An optimistic long-term outlook amongst British businesses in China is driven by a growing enthusiasm for China’s market potential (86%), ongoing market opening (54%) and increasing demand (42%).
Optimism not translating into action
Despite shifting sentiment, optimism is not yet being translated into action.
Only 29% of overall respondents report that they plan to increase investment in their Chinese mainland operations this year, with the majority (54%) reporting they will not be changing their investment plans. However, this does rise slightly to 35% for those who reported being more optimistic for the coming year following reopening. Nonetheless, this “wait-and-see” approach is in line with the results from our British Business in China: Sentiment Survey 2022-23 which indicated that 30% of businesses were planning on increasing investment in mainland China in the 2022-23 financial year.
Nonetheless, plans to increase investment have risen in stark contrast to last April, where in April 2022 only 2% of businesses reported plans to increase investments. However, businesses’ willingness to increase investment still remains far below pre-pandemic levels of investment, where 60% of businesses were planning to increase investment in their operations in mainland China in our British Business in China: Sentiment Survey 2019.
Still a mixed picture
Not all respondents reported an optimistic outlook towards the post-COVID-19 business environment, however, with 22% of industry participants indicating a neutral (14%) or even more pessimistic (8%) outlook for 2023 since China’s announcement of its reopening and relaxation of COVID-19 protocols.
Of those who indicated a neutral perspective towards the business environment in 2023, the results suggest that China’s uncertain economic outlook (60%) is a strong contributing factor, alongside geopolitical concerns (53%). This is a similar story for those who remain pessimistic, with 56% of those indicating a pessimistic outlook also expressing concerns about China’s economic outlook and 44% also reporting concerns regarding the state of geopolitics.
China’s regulatory environment and policy goals
Industry participants have reacted positively to the Chinese Government’s most recent relaxation of COVID-19 controls. However, the survey results also indicate a greater appetite amongst British businesses in China for more transparency in China’s regulatory environment, with a third of respondents (33%) who expressed a more pessimistic outlook of 2023 stating that a lack of transparency in China’s policy environment continued to drive this negative outlook.
Furthermore, more than a quarter (28%) of all businesses reported that uncertainty and a lack of transparency in China’s regulatory environment was one of the three greatest challenges they were facing post COVID. As such, the survey results suggest that greater clarity from the government on how it intends to shape the post COVID business environment spending would be greatly welcomed by British businesses.
Lianghui laid the foundations for foreign businesses to play a greater role in the post COVID economy. Notably, the government endorsed foreign investment as a key contributor to growth, with Li Keqiang raising foreign investment from a #7 to #4 priority for the Chinese Government. More coverage of Lianghui by BritCham can be found here.
However, the survey shows that British businesses are still awaiting how the government intends to “comprehensively improve the business environment”, with 70% of participants adopting a ‘wait and see’ approach in order to understand specific policy support for foreign businesses.
The next big challenge
The survey results show that concerns regarding the state of geopolitics were not restricted to those who maintained a pessimistic outlook on the post COVID business environment in China. Across the entire data sample of participants, geopolitical issues are reportedly the biggest challenge facing British businesses in China post-COVID, particularly China-US relations (37%) and UK-China relations (30%). The current trajectory of China-US relations was most concerning for businesses’, reflecting an increasingly strained bilateral relationship characterised by disputes over supply chains, global security concerns over the future of Taiwan, and contrasting viewpoints on the Russian-Ukraine war.
This was closely followed by concerns regarding the state of UK-China relations, which have been spotlighted in recent weeks following publication of the Integrated Review (IR). The IR represents a cautious approach from the UK Government towards China, describing the state as an “epoch defining challenge” in “almost every aspect of national life and government policy”. However, it also indicates a willingness and desire to increase understanding of China to explore areas of collaboration. You can find more information about the British Government’s Integrated Review by following our coverage here.
Following challenges navigating geopolitical relations are concerns about the economy, with 26% of respondents citing concerns about the state of the overall global economy, and 37% citing concerns specific to China’s domestic economy. The global economy is still recovering from a multitude of shocks, from the COVID-19 crisis to the Russia-Ukraine war. In addition, the growth of developing nations has been further hindered by global inflation and the international energy crisis. China, like many other advanced and developing economies, is still navigating its post-COVID recovery path in an uncertain global economy.
The reopening of China’s economy has brought with it increasing optimism amongst British businesses operating in mainland China. Notably, this optimism has been driven by the easing of international and domestic travel restrictions, China’s economic outlook, and greater engagement with clients. This optimism also extends to the long-term, with British businesses expressing excitement at China’s market reopening, alongside the market potential and increased demand that it brings with it. Importantly, the survey indicates that this optimism is not yet translating into action, with the majority of participants expressing no changes to their investment plans. Indeed, plans for increased investment in mainland China operations remain well below pre-pandemic levels.
The survey results continue to present a mixed picture, however with a portion of businesses remaining neutral (14%) or becoming more pessimistic (8%) in their outlook for the coming financial year. The main drivers of pessimism or neutrality are China’s economic outlook, geopolitical concerns and domestic demand. These concerns were also expressed by the wider sample of participants, with the vast majority (90%) reporting that geopolitical issues are set to be the next biggest challenge post-COVID.
The survey demonstrates that British businesses are keen to engage with China’s post-COVID businesses environment. Nonetheless, greater transparency in China’s policy environment and clear communication of post COVID policy support for foreign businesses would aid in translating this optimism into investment.