According to the European Union Chamber of Commerce in China, Foreign companies are shifting investments and their Asian headquarters out of China.
The report issued on Wednesday, June 21, 2023, adds to the many signs of growing pessimism despite the ruling Communist Party’s efforts to revive interest in China’s economy following the end of anti-virus controls.
In the report, the European Union Chamber of Commerce in China noted that companies are uncomfortable with security controls, government protection of their Chinese rivals and a lack of action on reform promises. They also are being squeezed by slowing Chinese economic growth and rising costs.
The European Chamber President, Jens Eskelund, told reporters ahead of the report’s release that business confidence in China is “pretty much the lowest we have on record.”
“There’s no expectation that the regulatory environment is really going to improve over the next five years,” Eskelund added.
Doing business in China has become more challenging, according to two-thirds of the 570 companies that participated in the European Chamber’s survey, an increase from less than half before the pandemic. In comparison to last year, when only half of respondents claimed the business environment was “more political,” three out of five respondents indicated it is.
In an effort to boost economic growth after it dropped to 3% last year, President Xi Jinping’s administration is encouraging foreign businesses to make investments and introduce technology. They are uncomfortable, however, with security regulations and strategies to establish rivals to major producers of commercial aircraft, computer chips, and other technology.
Subsidies and market restrictions are frequently involved, which Washington and the EU claim contradict Beijing’s pledges to free trade.
After police raided the offices of two consultancies, Bain & Co. and Capvision, as well as a due diligence firm, Mintz Group, without providing a reason to the public, businesses are on edge. Authorities assert that businesses must abide by the law but there have been no reports of alleged infractions.
Additionally, businesses are apprehensive about Beijing’s advocacy of national independence. Manufacturers, hospitals, and other organizations are being pressured by the Xi government to utilize Chinese suppliers, even if it increases their expenses. Foreign businesses fear being excluded from their markets.
Last month, the government banned using products from the biggest U.S. maker of memory chips, Micron Technology Inc., in computers that handle sensitive information. It said Micron had unspecified security flaws but gave no explanation.
The biggest concern is the ruling party’s sweeping expansion of its definition of national security to include the economy, food, energy and politics, Eskelund said.
“What does qualify as a state secret? Where does politics begin and the commercial world stop?” Eskelund queried. That “creates uncertainty” about “where we can operate as normal businesses,” he added.
Singapore Becomes Top Destination For Companies Fleeing China
In the European Chamber survey, the top destination for companies moving their Asian headquarters out of China was Singapore, with 43% of companies that moved, followed by Malaysia. Only 9% went or plan to go to Hong Kong.
One in 10 companies in the European Chamber survey disclosed that they have shifted investments out of China. Another 1 in 5 are delaying or considering shifting investments. In aviation and aerospace, 1 in 5 companies plan no future investment in China.
The European Chamber noted that foreign companies are not the only ones moving. 2 out of 5 in its survey reported that Chinese customers or suppliers are shifting investments out of the country as well.
China has long been a top investment destination due to its huge and growing consumer market, but companies complain about market access restrictions, pressure to hand over technology and other irritants.
The ruling party has tightened control since Xi took power in 2012, pressing foreign companies to give the party board seats and a direct say in hiring and other decisions.
Leaders including Premier Li Qiang, China’s top economic official, have promised to improve operating conditions, but businesses say they see few concrete changes.
“Our members are not really convinced that we are going to see tangible results,” Eskelund said.
