BEIJING (AP) — Uncertainty and “draconian regulations” have significantly increased risks for foreign businesses in China, according to a report by a European business group released on Wednesday.
The extensive report by the European Union Chamber of Commerce in China calls on China’s leaders to address concerns that have escalated in recent years.
“This report comes at a time when the global business environment is becoming more politicized, forcing companies to make tough decisions regarding their engagement with the Chinese market,” it states.
The study, conducted by the chamber and the China Macro Group consultancy, highlights worries expressed by European and American companies operating in China. Foreign investment decreased by 8% last year as companies adjusted their commitments in the world’s second-largest economy.
EU Chamber officials noted that China’s evolving business environment is partly a response to trade tensions and reliance on key imports. This is particularly relevant given the trade disputes with Washington and talks of supply chain “decoupling” from China following disruptions during the COVID-19 pandemic.
However, European companies also need to manage their own risks.
China has recently emphasized its openness to foreign companies and investment. The commerce ministry spokesperson mentioned efforts to ensure 100% access to manufacturing by removing remaining trade barriers.
Although China has promised tariff exemptions and measures to stop discrimination against foreign companies, some of its actions have contradicted this idea of openness. Raids on foreign businesses, opaque state secrets laws, and stricter rules on data management have caused unease among foreign business people in China.
According to Jens Eskelund, president of the European Chamber in China, the number and severity of risks for companies have significantly increased in recent years. Issues such as access to government procurement contracts remain unaddressed.
European businesses find it challenging to operate in sectors like medical equipment and research and development due to regulatory hurdles. Pharmaceutical companies are particularly concerned about data security regulations hindering clinical trials.
China’s focus on national security in crucial technology areas has further complicated the business landscape, influenced by U.S. actions against companies like Huawei Technologies.
Sean Stein, chair of the American Chamber of Commerce in China, acknowledged China’s progress in addressing some concerns but highlighted the need for clarity on definitions of national security to ensure predictability and certainty.
One point of contention for European businesses is China’s plan to investigate French brandy producers for alleged dumping. On the other hand, China is displeased with an EU investigation into subsidies for electric vehicles from China.
Overall, the business environment in China has become less predictable and efficient due to politicization. Governments must acknowledge the challenges posed by uncertainty and help businesses prepare for an uncertain future.
