What's going on?

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.

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 (tweet this). 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.

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.