China Bald head unattractive? EU Chamber demands Beijing action by dpa-AFX

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BEIJING (dpa-AFX) – China’s market is becoming less attractive for European companies due to unfulfilled reforms and increasing problems, according to a report. “We see that China’s attractiveness is declining somewhat compared to other locations,” said the President of the EU Chamber of Commerce in China, Jens Eskelund, in Beijing. For some companies, the risks of doing business in China are already beginning to outweigh the investments, according to the Chamber’s Spanish position paper. This trend will intensify if the companies’ main concerns are not addressed. “Concrete action is therefore needed to turn the tide,” demanded the lobby group with more than 1,700 members.

The list of concerns is long and is pushing confidence in China to an all-time low: the economy is not getting going, market access remains difficult and domestic consumption is weak. In addition, the ruling Communist Party is repeatedly unsettling many companies with opaque laws in the name of national security. One consequence: companies have to spend more on legal advice.

“Long Covid” in China’s economy?

“The reliability, dependability and efficiency that 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 Eskelund, the economic situation in China is now deteriorating. “It feels a bit like the Chinese economy has Long Covid,” he said. After the corona pandemic, it has not yet managed to fully get back on its feet.

The outlook is accordingly: making money in China is becoming more difficult, explained Eskelund. Margins are better outside the People’s Republic, which could become more pronounced in the future. Many companies feel that they are at a “turning point” at which they must consider whether to invest more in their China business or perhaps look for another, long-term profitable location. Eskelund roughly estimates that a third to a half of EU companies are waiting on the sidelines with a view to further investments to see how the economy develops and, if necessary, rethink their strategy for China. This is the group that must prove to Beijing that China is still an attractive location, stressed Eskelund.

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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 or 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 members are examining their dependence on China in the supply chain as a lesson from the corona pandemic and because of geopolitical tensions. The solution could be to partially relocate production to India or Vietnam.

“The German industry is also increasingly focusing on the costs and risks of engaging in China,” explained Elisa Hörhager, representative of the Federation of German Industries (BDI) in China. There are still “opportunities, potential and dynamism” on the Chinese market. “But overall the outlook for foreign companies is continuing to bleak,” she said.

Many remain skeptical. A survey published in May by the EU Chamber of Commerce found that 44 percent of the 512 members surveyed were more pessimistic about their business prospects than ever before. Eskelund estimates that this trend could continue without Beijing taking countermeasures. Companies in the automotive industry and in the financial services and medical products sectors were particularly skeptical. Cosmetics and pharmaceutical companies are 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 who had discussed China’s long-term economic policy in Beijing. The Third Plenum had advocated further investment in the manufacturing sector as an important driver of China’s economic development, wrote the EU Chamber. Beijing wanted to use this to increase production capacity in technologies in which more is already being produced than is being demanded, which in turn had 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 the national level, the EU Chamber criticized the party for not having specified how consumption should be stimulated. The failure to implement significant economic reforms is likely to lead to growing tensions between the EU and China, the position paper said.