European companies are rethinking their plans for a 'closed' China

European companies are rethinking their plans for a ‘closed’ China

Foreign direct investment from Germany to China grew about 30% in the first eight months of the year from a year earlier, China’s Ministry of Commerce said on Monday.

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BEIJING — European companies in China are reassessing their market plans after this year’s Covid controls further isolated the country from the rest of the world, said Joerg Wuttke, president of the European Union Chamber of Commerce in China.

China’s strict covid policy has restricted international travel and business activity, especially after a two-month lockdown this year in Shanghai.

The tough measures of the past two years initially helped China recover more quickly from the impact of the pandemic compared to other countries.

But the policy is increasingly in contrast to a world that is increasingly relaxing many Covid restrictions.

For European companies, “we’re talking about a complete readjustment of our view on China in the last six months,” Wuttke told reporters at a briefing for the chamber’s annual China position paper, released on Wednesday.

He said lockdowns and uncertainty for businesses have made China a “closed” and “characteristically different” country that could prompt businesses to leave.

So far, most companies haven’t left, just a few very small ones, Wuttke said. But he pointed out that the chamber cannot survey companies that have decided not to enter China at all.

I’ve been here on and off for 40 years and I’ve never seen anything like this, where suddenly ideological decision-making is more important than economic decision-making.

Joerg Wuttke

President, EU Chamber of Commerce in China

EU foreign direct investment in China fell 11.8% in 2020 from a year earlier, according to the chamber’s position paper. More recent figures were not available.

“While there are still ‘a select group of high-profile multinational companies poised to make a billion-dollar splash’, the trend of declining FDI is unlikely to reverse, while European executives are heavily restrained to travel to and from China to develop potential entirely new projects. said the paper.

China’s economy grew by 2.5% in the first half of the year, well below the official target of around 5.5%. Beijing indicated in late July that the country may fall short of that goal.

Meanwhile, the authorities have shown little sign of scrapping the so-called dynamic zero covid policy.

China has reduced the quarantine time for international and domestic travelers. But sporadic closures, whether on the resort island of Hainan or in the city of Chengdu, have kept business uncertainty high.

Wuttke said he hopes the earliest China can open its borders will be late 2023, based on the time needed to vaccinate enough of the population.

‘Ideology trumps economics’

European companies that have remained in China increasingly face an environment in which “ideology trumps economics,” the chamber’s position paper said in its executive summary.

“I’ve been here on and off for 40 years and I’ve never seen anything like this, where suddenly ideological decision-making is more important than economic decision-making,” Wuttke said. “And maybe that is also amplified by voices from abroad, the United States[n] sanctions, the US isolated China, so I can partly understand why self-sufficiency is high on the agenda.

He was referring to China’s push in recent years to develop its own technology and other industries.

Meanwhile, among other measures, the US has restricted the supply of key components to Chinese tech companies like Huawei.

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The chamber did not state specifically what this ideology consisted of, but said that China’s Covid policy embodies the country’s “removal from the rest of the world”.

The policy has not changed despite many long and candid discussions with Chinese government officials, Wuttke said.

“I think these people are torn between what they see should be done and what can be done,” he said. “After [there’s] a very severe directive, very clear from above, that is how it has to be, that is the ideology. And how can you challenge ideology?

Chinese President Xi Jinping said earlier this month that the country “continued to respond to COVID-19 and promote economic and social development in a well-coordinated manner,” according to a paraphrase of his remarks shared by China’s Foreign Ministry. China.

While Xi said that “China has entered a new stage of development,” he said that “China’s door of openness and friendly cooperation will always be open to the world,” according to the statement. His comments came during his first foreign trip since the pandemic began, to Kazakhstan and Uzbekistan, during which he met with leaders from several countries in the region.

In recent years, the Chinese leader has sought to unite the country around the ruling Communist Party and its plans for the “great rejuvenation of the Chinese nation.” Xi is ready to consolidate his power at a major political meeting next month.

China’s big market

Foreign companies already in China generally stay put for now.

Even if China’s economy grows more slowly, its size and low base “actually make a compelling case [for foreign businesses]we’re still going to make it,” Wuttke said.

Some, notably the German auto giants, are investing more.

During the first eight months of the year, Germany’s foreign direct investment rose about 30% from a year earlier, faster than the 23.5% pace recorded during the first seven months, the Commerce Ministry said on Monday. from China.

However, the ministry did not release updated figures for US investment, which according to official data had grown around 36% in the first seven months of the year.

Foreign companies can still find specific areas of opportunity.

China is improving local market access, albeit in areas where locals already dominate or are “desperate” for foreign investment, Wuttke said. “Otherwise, frankly, I would stop producing this newspaper.”

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