European companies are rethinking their plans to ‘shut down’ China

Germany’s foreign direct investment in China rose by about 30 percent year-on-year in the first eight months of this year, China’s Commerce Ministry said on Monday.

Video | Visual China Group | Getty Images

BEIJING — European companies in China are reassessing their market plans after this year’s containment of the new crown epidemic 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-19 policies have restricted international travel and business activity – especially after a two-month lockdown in Shanghai this year.

The draconian measures over the past two years initially helped China recover from the shock of the pandemic more quickly than in other countries.

But the policy stands in increasingly stark contrast to a world that is increasingly easing many Covid restrictions.

For European companies, “We’re talking about a full reshuffle of the perception of China over the past six months,” Wuttke told reporters at the chamber’s annual China position paper briefing, released on Wednesday.

Lockdowns and uncertainty for businesses have turned China into a “closed” and “distinct” country, he said, 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 of commerce cannot investigate companies that decide not to enter China at all.

I’ve been here on and off for 40 years and I’ve never seen anything like it, suddenly ideological decisions are more important than economic ones.

Jorg Wutke

President of the European Union Chamber of Commerce in China

According to the Chamber of Commerce’s position paper, EU foreign direct investment in China in 2020 fell by 11.8% year-on-year. No recent data.

“Although there is still a ‘high-profile group of multinational companies ready to invest billions of dollars’, the downward trend in foreign direct investment is unlikely to reverse, and European executives are severely restricted in travelling to and from China to develop potential greenfield projects,” the paper said. Say.

Investors remain in 'wait-and-see mode' on China, analysts say

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

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

China has reduced quarantine time for international and domestic travelers. But sporadic lockdowns have heightened business uncertainty, whether it’s the tourist island of Hainan or Chengdu.

Wuttke said he expects China to open its borders as early as the end of 2023, depending on how long it takes to vaccinate a large enough population.

“Ideology trumps economics”

The chamber’s position paper said in its executive summary that European companies remaining in China are increasingly facing an environment where “ideology trumps economics”.

“I’ve been here on and off for 40 years, and I’ve never seen anything like this, and suddenly ideological decisions are more important than economic ones,” Wuttke said. “Maybe this is also amplified by the voices of the outside world, the United States[n] Sanctions, the US cuts off China, so I can partially understand why self-reliance is so high on the agenda. “

He was referring to China’s push over the past few years to build its own tech and other industries.

At the same time, among other measures, the United States has restricted the supply of key components by its companies to Chinese technology companies such as Huawei.

Read more about China from CNBC Pro

The chamber did not specify the content of this ideology, but said China’s Covid-19 policy reflects China’s “distance from the rest of the world”.

The policy has not changed, despite numerous lengthy, candid conversations with Chinese government officials, Wuttke said.

“I think these people, they’re torn between what they think they have to do and what they can do,” he said. “Then [there’s] Very stern, very clear instructions from above, that’s what’s required, that’s ideology. How can you challenge ideology? “

Chinese President Xi Jinping said earlier this month that China “continues to respond to Covid-19 in a well-coordinated manner and promote economic and social development”.

Xi Jinping said that “China has entered a new stage of development”, and he insisted that “the door of China’s openness, friendship and cooperation will always be open to the world”. His remarks came on his first trip abroad to Kazakhstan and Uzbekistan since the pandemic began, during which he met with leaders of several countries in the region.

Over the past few years, the Chinese leader has tried to unite the country in support of the ruling Communist Party and its plans for a “great rejuvenation of the Chinese nation.” Xi will consolidate his power at a major political meeting next month.

China’s big market

Foreign companies already in China are generally staying put for now.

Even though China’s economy is growing more slowly, its size and low base ‘actually make a compelling case [for foreign businesses]we will still be successful,” Wuttke said.

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

Foreign direct investment from Germany rose about 30 percent year-on-year in the first eight months of this year, China’s Commerce Ministry said on Monday, faster than the 23.5 percent pace in the first seven months.

However, the ministry did not release the latest investment data from the United States, where official data showed that investment in the United States rose about 36 percent in the first seven months of the year.

Foreign businesses can still find specific areas of opportunity.

China is improving local market access, although in regions where locals already dominate or are “desperate” for foreign investment, Wuttke said. “Otherwise, frankly, I would stop making this paper.”

Why China is showing no sign of abandoning its 'zero-coronavirus' strategy

Source link