Despite the optimism surrounding the signing of the Phase One trade agreement between the US and China earlier this year, serious disputes remain unresolved. These tensions have been further aggravated by COVID-19, which has triggered a new wave of anti-China sentiment in the US and concerns of over-reliance on China as the dominant and critical link in global supply chains. The recent introduction of China’s new national security law in Hong Kong has added to tensions between the two countries.

Brunswick Group has been tracking public sentiment, both in China and the US, towards companies from both countries and the bilateral relationship overall. This data signals that American companies operating in China face significant challenges, both in China and at home. And the data also highlights a clear need for US companies to engage stakeholders to ensure they understand the value they bring to both countries.

Anti-China Sentiment Calls Business Ties Into Question

American public perceptions towards China were already unfavorable prior to COVID-19, and attitudes have further deteriorated as a result of the pandemic. In polling of the US public that the Brunswick Group conducted in November 2019, 62% were found to have an unfavorable view of China, compared to 38% that had a favorable view. In our most recent poll, which was conducted at the end of May 2020, we found that unfavorable views towards China had increased by 14 percentage points to 76% of the US public.

Analysis of social media conversation related to China further illustrates how COVID-19 has led to an increase in anti-China sentiment in the US. From early this March, as COVID-19 began to spread rapidly across the world, there was a surge in online discussion about China, with China four times more likely to be mentioned as compared to pre-pandemic levels. This peaked to eight times more mentions during the height of COVID-19 in mid-March. In more recent weeks, there remains an elevated level of discussion around China, signaling sustained attention on the topic.

During the peak of the China social media conversation in mid-March, 64% of the tweets towards China were negative. While negative sentiment towards China has dropped in more recent weeks to 49%, it remains high versus the pre-March weekly average level of 32%.

This analysis indicates that many Americans are assigning blame to China for the outbreak, and this is elevating their level of concern towards China as a whole. Similar sentiment is apparent in Washington D.C., where politicians from both parties are increasingly adopting a position that is tough on China. This could lead to American businesses in China receiving more questions about their operations and business goals from US stakeholders.

Politicized Tensions Impacting Chinese View of US Companies

Equally as crucial as understanding US public opinion is for US companies to gauge how Chinese consumers feel about the United States and its companies and the actions taken by the public to make these sentiments clear.

A poll published by the Brunswick Group in November 2019 shows that, even before COVID-19, anti-US sentiment in China ran high. Almost half (48%) of consumers stated that they avoided buying US products as a result of the trade dispute, with many feeling increasingly negative towards US businesses (46% and +3 points versus June 2019).

These types of boycotts and increasingly negative views have serious consequences for US companies operating in China. It is vital for these companies to be sensitive to local public sentiment, anticipate concerns, and be aware of political sensitivities. They should look to continue engaging with the Chinese public by crafting and communicating their own local corporate stories. This will help distance their business away from geopolitical rhetoric and instead demonstrate their customer understanding, strong local partnerships, and provide reassurance on their continued “in China for China” commitment. 

Balancing China’s Importance with Diversifying Supply Chains
 

China’s role as a central player in global supply chains over the past two decades is undisputed. COVID-19 has exposed the potential risks of this over-reliance, resulting in a ‘rallying cry’ to diversify supply chains away from China, with some voices even calling for US companies to leave China. Indeed, a poll conducted by the Brunswick Group in November 2019, revealed that 60% of the American public believe that US companies should move their operations and supply chains out of China, to other countries.

However, many others acknowledge that China will continue to have an irreplaceable role to play due to its big advantages in manufacturing and logistics. This is reflected in the American Chamber of Commerce in China’s own survey in March 2020 (in partnership with PricewaterhouseCoopers) which shows that over 70% of US companies have no short-term plans to relocate production outside of China because of COVID-19.

US companies can therefore expect to face increasing tension in balancing the importance of the Chinese economy to their business interests.

Therefore, it is essential for US companies that operate in China to be sensitive about topics that could stir up political sentiment in either country and clearly communicate their business plans and the value of their continued presence in China to both sides.

Communicating and Engaging with Investors is Key

With concerns and questions over global companies’ continued reliance on China as the critical link in manufacturing supply chains rising substantially since the COVID-19 crisis, US companies need to be prepared to proactively engage and be transparent with investors and analysts on their China strategy rationale and crisis protocol in place to handle any future supply chain challenges.

Brunswick analyzed earnings call transcripts of US-listed companies from Jan. 1-Mar. 13, 2020 to understand how, and to what extent, corporations are talking about COVID-19 to investors and analysts. When speaking to Chinese companies (listed on a US stock exchange), analysts were found to prioritize questions about the impact of COVID-19 in the context of customers, workforce, and plans for recovery. Other (non-Chinese) US-listed companies are more likely to be asked about COVID-19’s disruption to their supply chain, reflective of the level of concern around this topic.

US companies may need to look beyond China to mitigate supply chain risks in the long run. An expected adoption of a “China-plus-one strategy”, whereby international businesses active in China set up a second production base in at least one other country, may help. This will ensure that US companies continue to benefit from their strong and established relationships in China, while providing re-assurance to their global and domestic stakeholders.

Three key take-aways for US companies with operations in China:

  1. In China, US companies need to be more cognizant of local perceptions about them and increase their engagement through storytelling to minimize misperceptions, distance themselves from geopolitical rhetoric, and reassure the Chinese public on their continued ‘in China for China commitment’. 
     
  2. In the US, US companies must recognize the risks associated with growing anti-China sentiment among the US public. They must ensure that the rationale of China operations is well understood by the US public and the direct benefits it brings to the US domestic market.
     
  3. Among all its stakeholders, it is crucial for US companies to proactively engage and be transparent on their China strategy rationale and their crisis procedures in place to handle any future supply chain challenges. They will need to adopt a “China-plus-one” strategy to look beyond China and mitigate supply chain risks.

Anne Alvernhe is a Director at the Brunswick Group. Jason Zhu is an Executive at the Brunswick Group.

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