A European business lobby group issued a warning on Wednesday, stating that European companies operating in China are too preoccupied with risk management rather than expanding their market share, which is undermining innovation and efficiency and driving up consumer prices. In its de-risking report, the European Chamber of Commerce stated that the COVID epidemic, the world economic downturn, the conflict in Ukraine, and the geopolitical rivalry between the United States and China had “skewed disproportionately towards risk management and building resilience” among businesses.
Challenges facing EU firms in China
According to the chamber, some 21% of respondents intended to increase their manufacturing in China, while another 12% intended to decrease it. Only 1% of respondents to the study said they intended to completely shift production outside of China. The lobby group stated in a report that accompanied the survey that the results came “at a time when the global business environment is becoming increasingly politicized, and companies are having to make some very tough decisions about how, or in some cases if, they can continue to engage with the Chinese market.” According to the research, businesses’ attention is now “skewed disproportionately towards risk management and building resilience,” and the Chinese market has grown “less predictable, reliable, and efficient.” Recent years have brought a number of difficulties for foreign businesses operating in China, including sluggish economic development, extremely stringent COVID rules, geopolitical tensions between the US and China, and national security crackdowns. Beijing has made an effort to reassure companies that the nation is still open for business in the wake of the outbreak, but in the meanwhile, authorities have reinforced anti-espionage and state secrets legislation, limited cross-border data exchange, and conducted high-profile raids on foreign consulting firms.
Key concerns for European companies
Since the EU Commission began looking into whether Chinese imports of state-subsidized electric vehicles are undercutting their European rivals in September, tensions with Europe have also increased. Approximately 55% of participants in the EU Chamber of Commerce study stated that the business environment in China has become more political over the past year, which has caused companies to concentrate more on de-risking their activities there. According to the research, “as politics has permeated the business environment, the volume, complexity, and severity of the risks companies face have grown exponentially in recent years.” The president of the chamber, Jens Eskelund, asked European businesses to reconsider unduly cautious behavior in spite of these worries in order to prevent impeding future development and innovation. Eskelund stated, “Although it is normal for all global actors to want to protect the security of their individual economies, it should be done in a way that disrupts business as little as possible.”
Lobby group’s insights on market conditions
“Actions taken to strengthen economic security and manage risk should be precise, targeted, and proportionate; they should never be used as an excuse for protectionism.” According to official figures, new foreign direct investment into China dropped to $33 billion in 2023, an 82 percent decrease from the previous year and a 30-year low. This week, the State Council of China unveiled a new action plan aimed at attracting foreign investment, with a particular emphasis on important sectors like biopharmaceuticals and advanced semiconductors. A long-standing grievance in the international business sector was that the State Council discriminated against foreign enterprises, and it vowed to change this.
Future strategies for EU businesses
A European business lobby group said on Friday that the percentage of European companies that consider China to be a top investment destination has dropped to all-time lows, and it may take years for trust in the second-largest economy in the world to rise again. In the most recent edition of its Business Confidence Survey, the European Chamber of Commerce in China reported that, with over 25% of respondents feeling pessimistic about their current growth potential and 44% optimistic about future prospects, the outlook for doing business in China was also at its lowest in the report’s 20-year history. Foreign companies are feeling less welcome than previously as a result of China’s economy confronting challenges and President Xi Jinping’s calls for self-reliance and authorities to continue with a production-focused, debt-driven development model despite opposition from the West. Ursula von der Leyen, the head of the EU Commission, and Emmanuel Macron, the president of France, pressed Xi on Monday to guarantee more balanced trade with Europe, but the Chinese leader did not appear to be prepared to make significant concessions while in Paris.
