UK companies will face difficulties in doing business in China in the next five years because of multiple challenges despite Beijing’s policy measures, according to a UK trade group.
“British companies are yet to see government measures translate into ‘meaningful opening-up’, with an anticipation that regulatory obstacles will increase rather than decrease in the next five years,” the report reads.
While foreign direct investment represents 3 percent of total investment in China, it has fallen for two consecutive years. It has been seen as a signal of confidence in the world’s second-largest economy and a way to sharpen the competitiveness of Chinese businesses.
“British business confidence is further constrained by the growing risk of increased trade tensions due to a complex geopolitical environment, which further discourages companies from making new investments in key areas,” the chamber stated.
Data from China’s commerce ministry showed an 8 percent decline in foreign direct investment last year. A wider gauge from the currency exchange regulator, including flows of retained earnings, showed a decline of about 80 percent in 2023 to $33 billion. It was the steepest drop since records began in 1980.
The report notes that the Chinese regime had introduced the 24-Point Guidelines for Attracting Foreign Investment to boost policy transparency and predictability.
“Despite this, this year has continued to see examples of policies introduced without warning and with insufficient support to ensure compliance. This includes the introduction of trade restriction threats,” the report reads.
“Official measures implemented without adequate signposting to international business inevitably undermine investor confidence in making long-term business plans in the Chinese market.”
The report also states that UK companies want to seek growth opportunities in China’s key sectors but that they remain cautious because of uncertainty in the current investment environment and potential increase in trade barriers. Additionally, businesses expressed concerns about low profitability in sectors such as automotive and energy, as prices have been driven down.
Worsening Business Environment for EU Companies
Business confidence among European companies in China has also declined since last year, according to a recent survey by the European Union Chamber of Commerce in China in its report “European Business in China Business Confidence Survey 2024.” A record 68 percent of companies reported that business has become more challenging in the world’s second-largest economy.“There are worrying signs that some European companies are either siloing operations or scaling down their ambitions in China as the challenges they face start to outweigh the benefits of being here,” Jens Eskelund, president of the European Union Chamber of Commerce in China, said in a statement.
“While the Chinese Government is frequently signaling its intent to improve the business environment, we now need to see concrete action to restore investor confidence.”
The survey found that European companies in China are experiencing uncertainties instead of enjoying robust recovery as expected. The report states that China’s structural issues—such as slowing demand, increasing overcapacity, and an ongoing downturn in the property sector—as well as market access and regulatory barriers, keep hitting European companies.
“European companies are confronted by growing uncertainties in China, in large part due to economic volatility and less predictable policy direction,” said Denis Depoux, global managing director of Roland Berger. “While volatility can be managed, the lack of predictability may reduce the appeal of the Chinese market.”
The survey noted that the strategies these companies use to adapt to China’s business environment could create a negative cycle for China, worsening the country’s economic difficulties.
