Daily Brief: Lockdown-Bruised Companies Are Starting To Think Twice About Staying In China

Daily Brief: Lockdown-Bruised Companies Are Starting To Think Twice About Staying In China

over 1 year ago3 mins

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Data out on Monday showed that the profits of foreign industrial firms based in China have tanked this year.

What does this mean?

China’s decision to lock down the economy has been weighing heavily on industrial companies, killing demand and slowing – if not altogether halting – production. And look, there are signs of a bounceback: profits in the sector were down “just” 6.5% in May from the same time last year – a notable improvement from April’s 8.5%. Trouble is, it looks like foreign firms will take a while to recover: their profits fell 16% between January and May from the same time last year, even as state-owned firms posted a 10% uptick. That’s probably because they don’t have access to the same resources and insider knowledge that their counterparts do, and can’t rely on big-money government contracts even when times are bleak.

Foreign firms in China profit

Why should I care?

The bigger picture: Abandon ship.

No surprises, then, that more and more foreign firms are reassessing whether to keep investing in their Chinese businesses at all: survey data out last week showed that almost a quarter of European companies in the country are thinking of relocating their current or planned investments – the highest proportion in a decade. And when you consider that the Chinese government isn’t wavering from its zero-tolerance Covid strategy, that proportion could be set to get even bigger.

Foreign firms consider leaving China
Source: European Union Chamber of Commerce in China

For markets: China’s a bargain.

Foreign businesses might be thinking about leaving the country, but investors are heading back in: Chinese stocks are up nearly 30% from mid-March, thanks in large part to easing lockdowns and supportive government policies. And with a key valuation metric showing that Chinese stocks are currently much cheaper than those in the US, a growing list of investment managers and banks are thinking about piling even more into the country.

Keep reading for our next story...

A Record Number Of Companies Rent First London Office Space

London image

Data out on Monday showed a record number of companies signed leases for major London office space for the first time.

What does this mean?

The arrival of the pandemic brought with it the dizzying revelation that you can do your job just as well without spending two hours on a train every day. So employers, the theory went, wouldn’t want city-based HQs at all, opting to open satellite offices instead. But according to analysis from UK real estate company Cushman & Wakefield, that’s not the case: a record number of businesses signed their first major lease in London last year. A third of those were businesses relocating from outside London, while the rest were wet-behind-the-ears startups. There’s apparently still a lot of demand for modern high-spec space too, with Google, TikTok, and more still willing to pay eye-watering rent for prime sites.

London office space

Why should I care?

The bigger picture: Landlord have mercy.

It’s true that overall occupancy rates are expected to stay well below the pre-pandemic average, as companies continue to let staff work from home for at least some of the week. But this data will still come as a relief to London landlords: it means workers will be incentivized to stay within commuting distance of the office, which should help prop up demand for properties to rent and buy.

Zooming out: Productivity pays.

London’s appeal to startups and Big Tech is part of the reason that the city’s productivity – that is, the economic output per worker – is so much higher than it is elsewhere in the UK. But the city still can’t bring up the overall average to match the US, where an hour of work is estimated to generate around $70 compared to the UK’s $60. That matters because productivity drives long-term economic growth, which is why UK economists all agree that improving the figure is crucial to get the country’s economy back on track.

UK productivity
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