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In recent weeks, the situation in China has changed massively due to the surprising lifting of almost all Covid measures. Almost forgotten are the nationwide protests that have pushed politicians to turn away from the zero-corona policy.

While businesses and people in general are relieved that China is opening up again and people can travel freely again, the virus is currently spreading unchecked throughout the country. Reliable information on the course of infections is not available. Due to the inadequate vaccination protection of many older people, especially the rural population, and lack of availability of an advanced Chinese vaccine, the loss of many lives is to be feared in the coming months.

The situation could be exacerbated by the increased travel activity during the Chinese New Year (21 to 27 January 2023). The government has appealed to refrain from travelling within China. There are also growing international fears that increased travel within China and to and from China could lead to new virus variants and spread worldwide.

The zero corona policy has been a major economic burden for many companies in China. In a survey conducted by the AHK China in August and September last year, in which about 600 German companies in China were asked about the current business climate in China, the values mark a historic low. But despite this historical classification, just under half of the companies expected profits to fall in 2022. In addition, 51% of companies continue to plan to increase investments in the next 2 years. These survey results may now look more positive, but confidence in the predictability and transparency of government policy will not have changed.

The Chinese market continues to play a central role in the plans of many German companies, as the APA and the China CEO of VW, representing the automotive industry, have recently made clear. The move away from the zero-corona policy can be an additional driver for economic growth if it is possible to get the pandemic under control and to maintain the supply chain despite illness. The growth potential remains enormous and the opening of the country is accompanied by an expected higher growth in GDP for 2023. German companies now also have the opportunity for a more lively exchange with Chinese business partners.

The increasingly politicized business environment makes it difficult to cooperate with the German government on possible subsidies. But in order to remain competitive on the world market in the future, there is no way around China. China has now become an R&D hub not only for the Chinese market, but technologies developed there are increasingly relevant for the entire global market. Although the topic of decoupling remains omnipresent in the debate about China, German Foreign Minister Baerbock also says clearly that Germany's China strategy is not a decoupling strategy, but rather about diversification.

Diversification, decoupling and the current business climate in business in China were also topics at the KPMG International Business Summit, which took place from 8 to 10 November at Frankfurt Airport. All sessions have been recorded and can be viewed. The session on the development of economic relations with China can be found here.

We wish you a stimulating read and all the best in the New Year of the Rabbit!

KPMG China Newsletter – January 2023

Current topics of the issue:

  • China Economic Monitor Q4 2022
  • China – A New Strategy Required
  • 23rd Annual Global Automotive Executive Survey
  • Audit Committee Quarterly III/2022
  • Survey Of Susteinability Reporting 2022
  • China CEO Outlook 2022