Global Courant
Mercedes CEO Ole Kaällenius (front, r), signing a memorandum of understanding on cooperation along with Zhimin Qian (front, l), chairman of the State Power Investment Corporation, in the presence of Li Qiang (back) on June 20, 2023 , l), Prime Minister of the People’s Republic of China, and German Chancellor Olaf Scholz (SPD, back, r).
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BEIJING – European companies in China are finding it more difficult to operate in the country even after it reopened due to Covid, the EU Chamber of Commerce in China said in its latest membership survey, released on Wednesday.
Mainland China ended strict Covid controls in December and authorities pledged to support more business travel in and out of the country.
But an initial economic recovery has lost momentum, while regulatory hurdles remain.
“Zero-Covid has ended, but other headwinds will need to be addressed if China is to regain its attractiveness,” the Chamber’s report said.
The annual business confidence survey showed a large increase in companies saying they have missed opportunities in mainland China due to market access restrictions or regulatory barriers.
While the survey found some of that was due to Covid controls, the outlook remains bleak.
There is “no expectation that regulation will really improve over the next five years,” Jens Eskelund, president of China’s EU chamber of commerce, told reporters at a briefing.
Ambiguous rules and regulations remained the top regulatory obstacle for respondents for the seventh year in a row, the report said.
China has introduced more regulations in recent years. Some targeted alleged monopolistic practices in the Internet technology sector, which Beijing had allowed to develop rapidly with few restrictions. Other new regulations have sought to set parameters for the protection of personal data, similar to privacy rules in Europe.
This year, however, China has made clear its emphasis on ensuring national security and expanded its counterintelligence law. News of raids or investigations at three foreign consulting firms in China has also upset business leaders abroad.
Eskelund said foreign companies are still waiting for clarity on the new regulation, as they did with rules released more than five years ago.
“I think we have to see how this plays out in reality,” he said. “We are not aware of very many companies that felt specifically addressed.”
Growth slowdown in China the biggest challenge
European companies surveyed said their main challenges by far were economic: the slowdown in growth in China and the world. Trade tensions between the US and China rank third, the report said.
China reported economic data for May that beat expectations and showed a slowdown from the previous month.
“At the end of the day, the bread and butter is what we can sell,” Eskelund said. “Economic concerns are seen as more important than politics by European companies in this case.”
Anecdotally, he said members have been more concerned about China’s economy in recent weeks than when the survey was conducted.
The study was conducted from February to early March, the chamber said.
Implications for foreign investment
Uncertainty and the macroeconomic environment have weighed on foreign investment in China.
The survey found that only 55% of respondents said China is one of the top three destinations for future investment – the lowest number since the survey began in 2010 when the question was asked.
“Since the end of 2019, not a single (small or medium-sized) company has come to China,” Eskelund said, pointing out that this is based on room investigations at embassies.
China’s Ministry of Commerce did not immediately respond to a request from CNBC for comment on this story.
The ministry has called 2023 an “Invest in China Year” and local governments have been trying to bring in foreign money. Prime Minister Li Qiang also met with German companies this week on his first trip abroad in the role, which he was given this year, state media said.
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Li will also deliver a keynote speech and meet world business leaders at the World Economic Forum conference in China’s Tianjin next week.
Members of the EU Chamber appreciate government involvement, Eskelund said, noting that business conditions vary by industry.
Still, he said, more than a quarter of surveyed respondents “expect to never see a meaningful market opening.”
