BEIJING (AP) — Uncertainty and “draconian regulations” have dramatically raised the risks for foreign business in China, a European business group said in a report Wednesday.
The lengthy paper by the European Union Chamber of Commerce in China called on Chinese leaders to do more to address the concerns, which it said had “grown exponentially” in recent years.
“This report comes at a time when the global business environment is becoming increasingly politicized and companies are having to make some very difficult decisions about how, or in some cases, whether they can continue to engage with the Chinese market,” it said. .
The survey, compiled by the chamber and consultancy China Macro Group, reflects concerns expressed by European and US companies operating in China. Foreign investment fell 8% last year from a year earlier as companies realigned their commitments in the world’s second-largest economy.
EU Chamber officials said China’s changing business environment partly reflects Beijing’s moves to minimize risks from trade frictions and dependence on imports of key goods or industrial products. This is especially true given the trade frictions with Washington and discussions about “decoupling” supply chains from China following the disruptions that occurred during the COVID-19 pandemic.
But they said European companies must also manage their own risks.
China strives to emphasize its openness of foreign companies and investments. Its commerce ministry spokesman said the country was working to ensure 100 percent access to manufacturing by removing remaining trade barriers.
On Tuesday, the State Council, China’s cabinet, issued an updated version of an action plan announced in July to encourage more foreign investment, especially in high-tech areas favored for growth, such as computer chips, biopharmaceuticals and advanced equipment. He promised exemptions from tariffs and called for an end to practices that discriminate against foreign companies.
But other actions run counter to this spirit of openness. Forays of foreign firms into China, unclear state secrets laws and the tightening of data processing rules has caused concern among many foreign businessmen in the country.
“The number and severity of risks that companies have to deal with has grown exponentially in recent years,” Jens Eskelund, president of the European Chamber in China, told reporters at a briefing ahead of the report’s release.
At the same time, Beijing has not addressed many of the issues raised by foreign businesses, including access to government procurement contracts, which are vital given the huge role state-owned companies play in the economy.
This is particularly difficult for medical device companies and research and development. Meanwhile, pharmaceutical companies are “quite worried about data security regulations that make clinical trials impossible,” said Markus Herman Chen, co-founder and managing director of China Macro Group.
“We’re still weird guys, and that needs to change,” Herman Chen said.
Part of the challenge stems from China’s heightened focus on national security over reliance on technologies vital to its own industries. In part, such strategies are being driven by U.S. moves to cut Huawei Technologies out of business and prevent sales of leading computer chips and the equipment needed to make them.
American companies have expressed similar concerns. Sean Stein, chairman of the American Chamber of Commerce in China, said recently that China has made progress on some issues but not on others.
“The business community would like both sides to be much clearer about the definitions of national security and how it is defined,” he said in an interview before an annual banquet with Chinese officials. “Because what we need is…predictability and we need certainty.”
One sore point for European business: China announces plans for anti-dumping investigations against three French brandy producers: E. Remy Martin & Co., Martell & Co. and Societe Jas Hennessy & Co.
“It’s hard to see how 300-euro ($330) bottles of XO can be accused of dumping,” Eskelund said.
For its part, China is unhappy with what is going on European Union Inquiry in electric vehicle subsidies in China and whether they have given an unfair advantage to Chinese manufacturers on the European markets.
Meanwhile, on cybersecurity, Eskelund said “we’ve seen some very draconian new regulations published in China.”
He said Europe’s approach to trade and investment issues was “targeted, very limited and very focused on eliminating ‘critical dependencies'” rather than competing with China. But companies still have to guard against risks or potentially being blindsided by policy changes.
At the same time, companies also face risks of downsizing and needing to bring their “best game” to China, while others feel too exposed, especially after the shocks of the pandemic, when entire cities were shut down and factories halted production at times.
China’s market has become “less predictable, reliable and efficient,” the report said, in part because the business environment is more politicized.
Eskelund urged China to restore predictability to the regulatory environment.
“Predictability was one of the main things that made China so attractive,” he said. “We may not have liked everything we saw, but we knew what we had.”
He said the purpose of the report is to try to bring the risk reduction and national security debate down to the level of specific industries and commodities so that different countries aren’t just throwing big abstract concepts at each other.
“We want to find common ground,” he said. “We want to work with China on these issues. We want to work with Europe on these issues.
