European companies in China are facing “less predictable” business conditions in the world’s second-largest economy, a report said yesterday, forcing them to allocate more resources to risk management.
The study, published by the EU Chamber of Commerce in China, sheds light on the increasing challenges for foreign firms with operations in the country.
More than half of those polled — 55 percent — reported a business climate that is “more political over the past year,” according to a recent survey conducted by the chamber, which represents more than 1,700 companies in China.
Photo: AP
This “general sentiment of uncertainty” has pushed three-quarters of European companies to review their exposure to China and diversify supply chains over the past two years, the survey found.
However, only 12 percent have decided to establish completely new supply chains outside China, while just 1 percent are severing all links with the country.
The report’s highlighting of uncertainty echoes sentiments expressed in an American Chamber of Commerce (AmCham) report last month, which noted an uptick in its members’ optimism about the Chinese market, but added that US-China tensions and regulatory inconsistency were among the main challenges reported.
Most of AmCham’s members planned limited or no new investments in China this year, it said.
“Despite significant improvement compared to last year, a majority (57 percent) of companies lack confidence that China will further open its markets to foreign firms,” it said.
“With the complexity and severity of the risks that businesses face having grown exponentially in recent years, companies are now having to allocate more resources to risk management and compliance activities than ever before,” the EU report said.
To navigate those risks, investing in due diligence services and detailed supplied chain reviews could become a competitive advantage, the chamber said.
However, a recent crackdown on consulting firms operating in China has spooked foreign investors, and recent changes to an anti-espionage law give Beijing more power than ever to determine what information falls under the national security umbrella.
“Derisking” has emerged as a core pillar of the EU’s economic policy toward China, after the COVID-19 pandemic and Russia’s invasion of Ukraine, the report said.
The term contrasts with the more drastic approach known as “decoupling,” pursued by some policymakers in the US who aim to isolate China or cut all commercial ties with the country.
The EU views China as a “partner,” but also as “an economic competitor and systemic rival,” the report said.
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