Companies doing business in China were given a nasty surprise when their earnings got hit as a result of Beijing’s nearly three years of extensive lockdowns followed by a sudden reopening in early December 2022.
The Epoch Times reported on Feb. 5 that with many places in China seeing 80 percent infection rates within 20 days, the decision had a massive effect on factory and business operations. Companies like Apple continue to exit China to relocate their supply chains.
Caught in the turmoil is luxury apparel maker Canada Goose. Its third-quarter earnings missed badly and its stock price fell 15 percent on Feb. 2.
While Canada Goose remains positive on its prospects in China, its chairman and CEO Dani Reiss said during the company’s earnings call that he did not anticipate the sudden reopening in early December.
“This led to a surge in infections, which had a significant impact on our business during what is typically our most productive trading month. Consumer traffic decreased dramatically and staffing levels were impacted due to illness,” he said.
China’s handling of COVID has hurt the earnings of many large multinationals, including Apple, Starbucks, Alphabet (Google), and Amazon.
Risky Business
Doing business in China includes dealing with Beijing’s abrupt and opaque moves. In 2021, Beijing took steps to limit foreign investment in its tech companies like Tencent and Meituan. Analysts said at the time that investing in China needs reevaluation.
The Ontario Teachers’ Pension Plan (OTPP) is Canada’s third-largest pension fund, with $242.5 billion in assets. In a Jan. 31 statement, the pension fund said it currently has about $5 billion, or 2 percent, of its net investments in China and that it has paused direct investments in private Chinese companies.
The OTPP told The Epoch Times by email on Feb. 3 that the pause only applies to direct private investments and that the fund will continue to invest in China through publicly listed securities and in public and private assets via its fund partners.
Reuters cited a source who said the move was due to geopolitical risks among other factors.
China has fallen in strategic priority in the minds of Canadian business leaders. The 2020–21 Canada-China Business Survey, conducted in August and September 2021 by the Canada China Business Council (CCBC), found that only 21 percent of companies polled said China was a top global priority. This was down from 26 percent in 2019–20.
CCBC also reported that respondents said Canada-China and U.S.-China relations were the top two obstacles for doing business in the Chinese market, whereas compared to the 2019 survey, neither reason even made the list of top 15 concerns.
Canada’s relationship with China has now been strained for years, ever since the arrest of former Huawei CFO Meng Wenzhou in December 2018 and the detention of Michael Kovrig and Michael Spavor shortly thereafter.
Ottawa recently made moves to cut China out of its resource sector, most notably regarding investments in critical minerals.
