According to a warning issued by a business lobby group, European companies operating in China are showing an excessive focus on risk management due to a business environment that has become less predictable and more politicized.
The European Union Chamber of Commerce in China revealed that approximately three-quarters of respondents among its 1,700 members had reevaluated their supply chains and exposure in China over the past two years, driven by a prevailing sentiment of uncertainty.
Amid this atmosphere, about 21 percent of respondents expressed plans to expand their production within China, while 12 percent intended to scale back. Interestingly, only 1 percent indicated plans to entirely relocate their production out of China.
The survey findings are particularly noteworthy “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,” stated the chamber in a report accompanying the survey.
The report highlighted that China’s market has become less reliable, predictable, and efficient, with companies increasingly focusing on risk management and resilience-building.
In recent years, foreign companies in China have encountered various challenges, including economic slowdowns, stringent COVID restrictions, geopolitical tensions between the US and China, and national security measures.
Despite assurances from Beijing that China remains open for business post-pandemic, authorities have intensified scrutiny on foreign consulting firms, strengthened laws concerning anti-espionage and state secrets, and restricted cross-border data sharing.
Moreover, tensions with Europe have escalated, especially following the EU Commission’s investigation into whether Chinese state-subsidized electric vehicle imports are undercutting European competitors.
The survey revealed that 55 percent of respondents perceived the business climate in China as becoming more political in the past year, leading companies to prioritize “de-risking” their operations in the country.
Jens Eskelund, president of the chamber, urged European companies to reevaluate overly cautious behavior to prevent stifling future growth and innovation.
He emphasized the need for actions taken in the name of risk management and economic security to be proportionate, targeted, and precise, and not to serve as a cover for protectionism.
According to government data, Foreign direct investment in China plummeted to a 30-year low in 2023, reaching $33 billion, an 82 percent drop compared to the previous year,.
Responding to these challenges, China’s State Council announced a new action plan to boost foreign investment with a focus on key industries such as advanced chips and biopharmaceuticals.
Additionally, promises were made to address discriminatory practices against foreign companies, a longstanding grievance within the foreign business community.
