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 rose about 30 percent in the first eight months of the year compared to a year ago, China’s Ministry of Commerce said on Monday.

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BEIJING — European businesses 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 activities, especially after a two-month lockdown this year in Shanghai.

The tough measures over the past two years have initially helped China recover from the shock of the pandemic faster than other countries.

But the politics stand in increasingly contrast to a world that is increasingly easing many Covid restrictions.

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

He said the shutdowns and uncertainty for businesses have turned China into a “closed” and “distinctly different” country that could entice businesses to leave.

So far, most companies haven’t left — just a few very small ones, Wuttke said. But he stressed that the chamber is unable to investigate companies that have decided not to enter China at all.

I’ve been here 40 years and I’ve never seen anything like this, where all of a sudden ideological decision making is more important than economic decision making.

Jörg Wuttke

President, EU Chamber of Commerce in China

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

“While there is still ‘a select group of leading multinational corporations poised to splash billions of dollars’, the downward trend in FDI is unlikely to reverse as European leaders are heavily impeded to travel to and from China to develop potential new ventures,” the newspaper said.

China’s economy grew 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 not meet this target.

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

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

Wuttke said he expects China to be able to open its borders no earlier than the end of 2023, depending on how long it takes 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 says in its summary.

“I’ve been here for 40 years and I’ve never seen anything like this, where all of a sudden ideological decision-making is more important than economic decision-making,” Wuttke said. “And maybe it’s also amplified by voices from outside, America[n] sanctions, America cutting off China, so I can partly understand why autonomy is so high on the agenda.”

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

Meanwhile, among other measures, the United States has banned its companies from supplying key components to Chinese tech firms such as Huawei.

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The chamber did not elaborate on what that ideology was, but said China’s Covid policy embodies “the country’s estrangement from the rest of the world”.

The policy hasn’t changed despite many long and candid conversations with Chinese government officials, Wuttke said.

“I think these people, they’re torn between what they see needs to be done, what could be done,” he said. “So [there’s] a very stern and very clear directive from the top of, that’s how it should be, that’s the ideology. And how can you challenge ideology?”

Chinese President Xi Jinping said earlier this month that the country had “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 the Chinese ministry. Foreign Affairs.

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

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

The great Chinese market

Foreign companies already in China generally stay put for the time being.

Even though China’s economy is growing more slowly, its size and weak base “actually make a compelling case [for foreign businesses]we’re still going to get there,” Wuttke said.

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

In the first eight months of the year, foreign direct investment from Germany increased by around 30% compared to the previous year, faster than the 23.5% pace recorded during the first seven months, China’s Ministry of Commerce said Monday.

However, the ministry has not released updated figures on investment from the United States, which according to official data increased by around 36% in the first seven months of the year.

Foreign companies can always find specific opportunities.

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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