Erratic policy shifts and a focus on national security are undermining China’s appeal as a place to do business, according to the group representing European firms in the country. The European Chamber of Commerce in China said Beijing’s mixed messages to foreign investors were fuelling uncertainty and eroding confidence.
“For decades, European companies thrived in China, benefiting from a stable and efficient business environment. However, after the turbulent past three years, many have re-evaluated their basic assumptions about the Chinese market. The business community feels that predictability and reliability – core characteristics of China’s attractiveness as an investment destination – have been eroded as a result of erratic policy shifts,” the chamber’s president Jens Eskelund said.
Mr Eskelund was introducing the chamber’s annual position paper, which includes more than 1,000 recommendations for the Chinese government to improve the business environment for European companies. The report notes that the hoped-for rebound after the lifting of zero-Covid restrictions last December petered out quickly as the anticipated release of pent-up demand failed to materialise.
With government debt mounting, the property market in crisis and the demographic dividend fading, Beijing has struggled to revive confidence in the economy. A push for self-reliance in key technologies and a new security law have chilled the atmosphere for foreign companies and led some to question their future in China.
“At the top of a growing list of questions about the Chinese market is, what kind of relationship does China want to have with foreign enterprises? A decisive answer would be for policymakers to begin tackling the fundamental, structural issues hindering China’s economic rebound, while taking concrete action to address the challenges faced by private companies, both Chinese and foreign,” Mr Eskelund said.
Beijing’s push for self-reliance is in part a response to Washington’s efforts to limit China’s access to advanced technologies and the European Union’s discussion of “de-risking” from China. The geopolitical tensions are creating complications for European companies as they try to navigate competing regulatory requirements.
“To fend off potential risks to operational continuity, an increasing number of firms are creating two separate systems, with one for China and one for the rest of the world – including for supply chains, data and information technology systems, and staffing,” the position paper says.
“It should be noted, though, that this approach still carries risks. Some European companies already report receiving conflicting requests from Chinese and western customers to produce goods containing either no China- or no US-made components or software. Should current geopolitical tensions take a turn for the worse, Chinese buyers may well feel pressure to cease using European suppliers altogether.”
New EU laws require companies operating outside its legal jurisdiction to comply with European human rights and environmental standards. But the report notes that there has been a crackdown in China on firms conducting background checks and due diligence on behalf of foreign companies.
“It is not clear how companies will be able to comply with such requirements, as independent, third-party audits that could certify them as not using forced labour anywhere along their supply chains are difficult, and in some cases impossible, under current conditions in China,” it says.