China’s Business Reopening: Investment, MNC, and Talent Ramifications

China’s COVID-zero policy, which had underpinned the country's philosophy since the pandemic's start, ended in December. China is now in a reopening phase and executives are trying to get visibility on what this means for investment and talent in both the short and medium term.

Author: Julian Buckeridge , Managing Partner, Shanghai, China

A Belated Yet Quick Reopening

After almost three years of the strictest pandemic restrictions the world has seen, China began to dismantle its COVID-related travel restrictions at the end of last year. This immediately buoyed global stock markets.?

Following the Chinese New Year holidays at the end of January, visa and entry requirements to the country have eased dramatically, and direct flights are now available from the US (Delta, United, and American all have services), while the UK (via British Airways and Virgin Atlantic) will restart direct flights in Q2 of this year. As a result, we will see some mobility of international labor into and out of China by mid-2023.??

Problematically for China, other Asian countries embraced earlier reopenings while their very strict lockdowns persisted. As a result, fundamental changes to the geo-business landscape, foreign direct investment (FDI) approach, and executive talent have taken place over the last 12 to 24 months.?

These changes mean that China is now seeking to catch up economically, and is aiming to achieve a compound annual growth rate (CAGR) of 5% annually. This is lower than the average rate of growth the country saw from 2011 to 2019 (7.34%) . However, because China’s economy is so large, even a 5% CAGR will be the equivalent of adding the economies of India, Japan and Indonesia to its own economy by just 2030.??

Singapore’s Visa Friendliness, Talent and Investment Influx?

Singapore eased its COVID travel restrictions nine months earlier than China did, in April of 2022. In addition, in November, Singapore launched a new work pass allowing foreigners earning at least S$30,000 a month to start, operate and work for multiple companies in the country at the same time.

The country now has a booming talent influx, with a solid net migration of senior executives and regional roles. Many businesses are moving their regional domicile businesses to the island state. The incoming mobility of talent is so muscular that Singapore no longer feels a need to compete with Hong Kong on tax, and has recently raised Goods and Services Tax (GST) and income tax rates. However, housing supply and costs in Singapore exceed Hong Kong’s, leading some people to return to the Chinese city.

China Attraction, Investment, and Talent

In contrast to South East Asia (SEA), foreign direct investment (FDI) to China has slowed and is heavily concentrated in key players with existing solid businesses. While a handful of large firms continue to pour money into their scaled China operations, many other firms with a presence in China are withholding new investment/CAPEX and looking to put it elsewhere. In short, the investment landscape in China is less multi-faceted than it used to be pre-pandemic.?

Studies show that the majority of European investment into China comes from a small number of large companies. For example, research firm Rhodium Group found that the top 10 European investors in China in each of the past four years made up nearly 80%, on average, of total European direct investment in the country. In comparison, from 2008 to 2017, the top 10 European investors in China made up just 49%, on average, of the total European investment value.

The Shanghai city government forecast said that China exports will take until Q4 to pick up, and that the annual export growth rate will stagnate in 2023. Monetary tightening and the threat of recession in China’s main export markets of the US and Europe have a big part to play in this continued downturn.

Very few multinational corporations (MNCs) report strong current interest from top global talent to relocate to China specifically, while global mobility has also taken a hit. The localization of executive positions and China for China strategy has accelerated, due to weak worldwide mobility and geopolitical business risk. This, plus the high barriers to entry for SMEs and new entrants to China have resulted in less dynamic demand for talent from new entrants and start-ups. Additionally, executives already working for a market leader are much more cautious and less open to change as well as entrepreneurial opportunities, given the global uncertainty and heightened investment by strong incumbents.??

As a result of the extensive lockdowns, the Chinese population has accumulated the biggest pile of new savings in the country’s history – US$2.6tn from last year alone. However, many analysts predict the scarring effects of the pandemic could remain for years if consumers in China continue to maintain a cash buffer of precautionary savings in the face of prolonged economic uncertainty. As a result, Chinese companies are also being conservative and watchful with any capex expansion.

APAC Leaders’ Focus is Elsewhere

Regional APAC leaders refocused on ASEAN countries and India in 2021/2022 because of the ease and immediacy of the opportunity in these geographies compared to China. It also seems that new projects and capex moved to these markets simultaneously because of geopolitical risk concerns. Most regional executives we spoke to, only plan to visit China in Q2 or as late as Q3, indicating that it will take time for business confidence to return.

Leaders based in China can now travel out of the country, with many starting to re-engage and connect with their global executive teams. It will take time for them to gain trust for investment from both regional and international leadership. China leaders will also find Singapore and SEA a stronger competitor for resources than before the crisis.

Julian Buckeridge is Managing Partner, Greater China at NGS Global and is based in Shanghai, China. He co-leads the Consumer, Retail and Hospitality practice group and is an active member of the Private Equity practice.

For over 15 years, Mr. Buckeridge has successfully completed numerous senior-level search assignments across the Asia Pacific region, covering all key functions for Asia-based publicly listed companies, as well as western multinational’s Asian businesses. Focused on the Asia region, Mr. Buckeridge utilizes his Mandarin language capability, general management experience with multinational corporations, and proven track record in company establishment, organizational development and successful hiring of staff, to assist his clients with the critical strategic recruitment of key executives.

NGS Global delivers partner-led executive search and leadership advisory services worldwide.?