European companies say doing business in China has become more difficult in the past year despite the end of zero-Covid, according to a survey by the European Union Chamber of Commerce in China.
The annual survey of hundreds of European businesses found that two-thirds reported that it was getting harder to operate in China while almost one in three reported year-on-year falls in revenue.
More than one in 10 have moved investments out of China and a similar number either have moved their Asian headquarters out of the country or plan to do so. Most companies have reviewed their supply chain strategies, with one in four planning to partially move their supply chains into mainland China while 12 per cent have moved parts of them out of the country.
“The negative trends we see in this year’s survey are concerning and reflect both recent challenges – brought by uncertainties in China’s policy environment and rising geopolitical tensions – and the persistence of long-standing market access barriers,” said Jens Eskelund, president of the European Union Chamber of Commerce in China. “For China to turn the tide and allow European companies to develop and contribute to their full potential, we really need to see concrete action.”
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Slowing economic growth and a weaker-than-expected recovery after the lifting of pandemic restrictions are the most important factors dampening confidence among European businesses. But most businesses said they had missed opportunities as a result of market access and regulatory barriers.
Many companies complain about the ambiguity of Chinese business regulations and there is widespread confusion about the scope of a new counter-espionage law that comes into force next week. It broadens the definition of spying and bans the transfer of information related to national security but it remains unclear how it will be applied to business activities.
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Denis Depoux, global managing director of consultants Roland Berger, said the uncertainties confronting companies were driving supply chain diversification and divestment, adding that the trend was likely to strengthen if the Chinese authorities fail to take action to address them.
“Many European companies are now focusing more on how to make their China operations more durable instead of capturing greater market share, which is not good for competition,” he said.
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Both the United States and the European Union have called for “de-risking” from China but Mr Eskelund said the EU had yet to define precisely what it would involve. He said he expected de-risking to be limited to reducing dependency on China for a limited number of commodities.
“In many ways this discussion is still relatively immature. We are still very much discussing it mostly at a conceptual level and I think we need to break it down at a more granular level to understand how this comes to impact companies and what it means in terms of our ability to actually function here,” he said.
