European businesses operating in China are encountering greater difficulties despite the country’s reopening from Covid-19 restrictions, as revealed in the latest member survey conducted by the EU Chamber of Commerce in China. The report, released on Wednesday, highlights the persistent hurdles faced by European companies, signaling a decline in China’s appeal as a business destination.
Although mainland China lifted its stringent Covid-19 controls in December and pledged to facilitate business travel, the initial economic rebound has lost momentum while regulatory obstacles remain. The Chamber’s annual business confidence survey reflects a significant increase in the number of companies reporting missed opportunities in mainland China due to restricted market access and regulatory barriers. While some of these challenges can be attributed to Covid-19 controls, the outlook for European businesses remains grim.
According to Jens Eskelund, president of the EU Chamber of Commerce in China, there is little expectation that the regulatory environment will improve over the next five years. The survey reveals that ambiguous rules and regulations continue to be the primary regulatory obstacle for respondents, a concern that has persisted for seven consecutive years. In recent years, China has intensified its regulation efforts, targeting alleged monopolistic practices in the internet technology sector and implementing personal data protection regulations akin to those in Europe.
However, this year has witnessed China’s increased focus on national security, with the expansion of its counter-espionage law. Foreign consulting firms in China have also been subjected to raids and probes, causing unease among international business leaders. Foreign businesses are still awaiting clarity on the new regulations, much like the uncertainty surrounding rules released over five years ago. The true impact of these changes remains to be seen, as few companies have reported concrete effects thus far.
The survey reveals that the top challenges faced by European businesses in China are primarily economic in nature, including concerns about slowing growth in China and the global economy. U.S.-China trade tensions also ranked high on the list. China’s economic data for May fell short of expectations, indicating a slowdown compared to the previous month.
Foreign investment in China has been significantly affected by the prevailing uncertainty and macroeconomic environment. The survey shows that only 55% of respondents consider China as one of the top three destinations for future investments, marking the lowest percentage since the question was first included in the survey in 2010. Small and medium-sized companies have notably ceased entering the Chinese market since the end of 2019, as indicated by chamber inquiries at embassies.
The Chinese Ministry of Commerce has yet to respond to CNBC’s request for comment on this matter. Despite government efforts to promote foreign investment, with 2023 designated as an “Invest in China Year,” the survey findings suggest that a meaningful opening of the market is not expected by more than a quarter of the respondents.
Premier Li Qiang, who assumed office this year, recently engaged with German businesses during his inaugural overseas trip. Additionally, he is scheduled to deliver a keynote speech and meet with global business leaders at the World Economic Forum’s conference in Tianjin, China, next week. While EU Chamber members appreciate the government’s engagement, the report emphasizes that business conditions vary by industry, and a significant portion of surveyed respondents remain skeptical about the prospect of market liberalization.