Foreign trade EU Chamber warns China about concerns of European companies

China's market has become less attractive for European companies due to unfulfilled reforms and increasing problems, according to a report. The European Chamber of Commerce has issued a warning.

For some companies, the risks of investing in China are already beginning to outweigh the rewards, according to the annual position paper of the EU Chamber of Commerce in Beijing. This trend will intensify if companies' main concerns are not addressed. "Concrete action is therefore needed to turn the tide," demanded the interest group with more than 1,700 members.

The list of concerns is long and has pushed company confidence in China to an all-time low: the economy is not getting off the ground, market access remains difficult and domestic consumption is weak. In addition, the ruling Communist Party continues to unsettle many companies with obscure laws in the name of national security. One consequence: companies have to spend more on legal advice.

"Long Covid" in China's economy?

"The predictability, reliability and efficiency that have made the Chinese market so attractive to foreign companies continue to decline, and the business environment is even more politicized," the paper said. In addition, according to Chamber President Jens Eskelund, the economic situation in China is now deteriorating. "It feels a bit like the Chinese economy has long Covid," he said. After the coronavirus pandemic, it has not yet managed to fully get back on its feet.

The prospects are correspondingly bleak: Making money in China is becoming more problematic, Eskelund explained. Margins are sometimes better outside the People's Republic, which could increase in the future. Eskelund roughly estimates that one third to one half of EU companies are waiting on the sidelines to see how the economy develops with a view to further investments and, if necessary, are rethinking their strategy for China. This is the group to which Beijing must prove that China is still an attractive location, Eskelund emphasized.

No signs of retreat

Despite the problems, the Chamber of Commerce does not see its members wanting to withdraw. According to Eskelund, the People's Republic is too important for the automotive and chemical industries. Almost a third of global container exports come from China. "If you are not in China and continue to invest here, you are simply no longer a global company," he said. According to the chamber, however, around a quarter of its members are examining their dependence on China in the supply chain as a lesson from the coronavirus pandemic and due to geopolitical tensions. The solution could be to relocate some production to India or Vietnam.

However, many remain skeptical. A survey published by the EU Chamber of Commerce in May revealed that 44% of 512 members surveyed were pessimistic about their business prospects, more than ever before. Eskelund estimates that this trend could continue without any countermeasures from Beijing. Companies in the automotive industry and in the financial services and medical products sectors were particularly skeptical. Cosmetics and pharmaceutical companies were somewhat more hopeful.

Growing tensions with the EU possible

Some observers were also disappointed by the results of a rare meeting of top Communist Party cadres in Beijing to discuss China's long-term economic policy. That Third Plenum continued to advocate investment in the manufacturing sector as an important driver of China's economic development, wrote the EU Chamber. In doing so, Beijing wants to increase production capacity in technologies in which there is already more production than demand, which in turn has led to tensions with important trading partners.

One example is solar cells, which found no buyers in China and therefore ended up cheaply on markets in the EU and the USA. Although China claims to be developing a demand system at national level, the EU Chamber criticized the fact that the party had not specified how consumption should be stimulated. The failure to implement meaningful economic reforms is likely to lead to growing tensions between the EU and China, the position paper said.

SDA