European companies are rethinking their plans for a “closed” China

China’s Ministry of Commerce said on Monday that foreign direct investment from Germany to China grew by about 30% in the first eight months of the year compared to last year.

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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 Jörg Woetke, president of the European Union Chamber of Commerce in China.

China’s tough policy on the Covid virus has imposed restrictions on international travel and business activity – especially after a two-month shutdown this year in Shanghai.

Strict measures in the past two years initially helped China recover more quickly from the shock of the epidemic than other countries.

But politics is increasingly at odds with a world that is increasingly easing many of the restrictions of Covid.

For European companies, “we’re talking about a complete realignment of our view on China over the past six months,” Wootke told reporters at a news conference on the chamber’s annual China position paper released on Wednesday.

He said the shutdowns and uncertainty for businesses had turned China into a “closed” and “obviously different” country which could prompt companies to leave.

Most companies haven’t left yet — only some very small companies, Wootke said. But he noted that the chamber is unable to survey companies that have decided not to enter China at all.

I’ve been here for 40 years and have never seen anything like it, where all the sudden ideological decision making is more important than economic decision making.

Jörg Wootke

President of the European Chamber of Commerce in China

Foreign direct investment from the European Union to China fell 11.8% in 2020 compared to the previous year, according to the chamber’s position paper. Latest numbers are not available.

“While there is still a ‘select group of high-profile multinational companies willing to make billions of dollars’, the trend of declining FDI is unlikely to be reversed while European executives are strictly prohibited from traveling to and from China to develop potential new projects,” she said. newspaper.

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 might not reach that goal.

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

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

Wootke said he expects China to open its borders as soon as late 2023, based on the time needed to vaccinate a sufficient population.

“Ideology trumps economics”

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

“I’ve been here for 40 years on and off and have never seen anything like it, where sudden ideological decision-making has become more important than economic decision-making,” Wootke said. “And that may also be amplified by voices from abroad, America[n] Sanctions, and America is cutting China off, so I can partly understand why self-reliance is high on the agenda.”

He was referring to China’s efforts in the past few years to build its technological and other industries.

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

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The chamber did not say exactly what this ideology consists of, but said that China’s policy on the Covid virus exemplifies “the country’s disengagement from the rest of the world.”

Wootke said the policy has not changed despite many long and frank conversations with Chinese government officials.

“I think these people are torn between what they see needs to be done, and what can be done,” he said. “then [there’s] Steering very strict and clear from above, that’s how it should be, that’s the ideology. 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.

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

Over the past few 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 due to consolidate his power at a major political meeting next month.

big china market

Foreign companies already in China generally remain stationary for the time being.

Even if the Chinese economy is growing more slowly, its size and low base “in fact present a compelling case”. [for foreign businesses]Wootki said.

Some, especially German auto giants, are investing more.

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

However, the department did not publish updated figures for investment from the United States, which official data showed grew by about 36% in the first seven months of the year.

Foreign companies can still find specific areas of opportunity.

Wutke said China is improving access to local markets, albeit in areas where locals are already in control or “desperate” of foreign investment. “Otherwise, frankly, I will stop producing this paper.”

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