- Potentially Deterrent China: EU Chamber Urges Beijing to Take Action
A study suggests that China's market is losing its appeal to European businesses due to unsatisfied reforms and escalating difficulties. Some businesses are discovering that the risks associated with investing in China are starting to outweigh the benefits, as per the EU Chamber of Commerce in Beijing's annual report. This trend could intensify if the major issues faced by companies are not addressed. "Immediate action is necessary to reverse this trend," urged the organization with over 1700 members.
The list of concerns is extensive and has severely affected the trust of companies in China: The economy isn't improving, market entry remains tough, and domestic consumption is weak. Additionally, the ruling Communist Party often causes unease among companies with vague laws in the name of national security, resulting in increased expenditure on legal advice.
"China's Economic 'Long Term Illness'"
The report pointed out that the predictability, dependability, and efficiency that attracted foreign businesses to China are dwindling, and the business environment is becoming more politicized. Now, according to Chamber President Jens Eskelund, the state of China's economy is akin to a long-term illness. "It feels a bit like China's economy is suffering from a long-term illness," he said. After the COVID-19 pandemic, the economy has not fully recuperated.
The forecast is bleak: Generating income in China is becoming increasingly challenging, explained Eskelund. Margin outside the country can sometimes be better and may improve in the future. Eskelund estimates that one-third to half of EU companies are keeping a watchful eye on how the economy evolves and may reconsider their China strategy. This is the demographic that Beijing needs to convince that China remains a lucrative location.
No Sign of Retreat
Inspite of the issues, the Chamber does not anticipate its members wanting to retreat. For the automotive or chemical industry, China is indispensable, according to Eskelund. Nearly a third of global container exports originate from China. "If you're not in China and continue to invest here, you're simply not a global company anymore," he said. However, about a quarter of members are reevaluating their reliance on China in the supply chain as a lesson from the COVID-19 pandemic and geopolitical tensions. The solution could be to shift production partially to India or Vietnam.
However, many remain skeptical. A survey published by the EU Chamber of Commerce in May found that 44% of 512 members had the most pessimistic business outlook ever. This trend could persist without intervention from Beijing, estimates Eskelund. Companies in the automotive industry, as well as in financial services and medical products, were particularly pessimistic. Cosmetics and pharmaceutical companies were slightly more optimistic.
Potentiala Growing Tensions with the EU
Some analysts were also dissatisfied with the results of a rare meeting of top Communist Party officials who discussed China's long-term economic policy in Beijing. The Third Plenum further promoted investments in the manufacturing sector as a key driver of China's economic growth, according to the EU Chamber. This could lead to an increase in production capacity in technologies where supply already exceeds demand, resulting in potential conflict with significant trading partners.
A case in point are solar panels that found no buyers in China and subsequently flooded markets in the EU and US at low prices. While China claimed it was developing a demand system at the national level, the EU chamber complained that the party had not specified how to stimulate consumption for this purpose. The failure to enact significant economic reforms could lead to escalating tensions between the EU and China, according to the position paper.
The EU Chamber of Commerce urged "The Commission" to take immediate action to reverse the trend of businesses losing interest in investing in China due to unsatisfied reforms and escalating difficulties. The failure to enact significant economic reforms could potentially lead to escalating tensions between "The Commission" and China, as per the position paper.
