The majority of British companies in China express pessimism about the business outlook in the world’s second-largest economy. Despite China lifting all COVID restrictions since late last year, many challenges and uncertainties persist, contributing to this negative sentiment.
According to a survey by the British Chamber of Commerce in China published on Dec. 12, 60 percent of British firms said that doing business this year in China is harder than last year, with many delaying their investment. “Among the 60 percent of businesses that found doing business harder, 78 percent of these attributed this increase in difficulty to economic factors.”
While the pessimism level dropped to 29 percent, compared with a record high of 42 percent from last year when Beijing imposed strict lockdowns under the zero-Covid policy, UK businesses remain hesitant about the business prospects in China with “a slow return in optimism.”
The survey found that China’s existing economic conditions, persistent challenges in the global economy, and growing concerns over geopolitical tensions have led to an uncertain business environment. This impacts small and medium-sized British businesses’ confidence in the country.
“Many companies are hesitant to increase investment in China, with the largest proportion of British businesses continuing to adopt a ‘wait and see’ approach by maintaining current levels of investment for the coming year,” the survey found.
Foreign investors have been sour on China for most of this year due to factors such as a weaker-than-expected post-pandemic recovery, a series of office raids by Chinese authorities, cash-strapped local governments offering fewer investment incentives, and higher investment yields in the United States.
“In previous years, 80 percent [of firms] were investing more because of market potential, but it feels like we’re now entering a phase of real clarity,” Julian Fisher, the chamber’s chair said.
British firms are also downgrading the significance of the world’s number-two economy in their global operations. Last year, their consideration of China as a high investment priority dropped to 31 percent, down from 59 percent in 2021.
British businesses cited economic uncertainty in China as the primary reason (75 percent) for reducing their investment. Geopolitical tensions ranked as the second factor at 53 percent, followed by global economic challenges, which ranked third at 38 percent.
De-Risking China
The European Union Chamber of Commerce in China (EuroCham), in its China’s Business Confidence Survey 2023 report, also highlights the worsening business environment in the country.The report found that 64 percent of respondents said doing business in China became harder last year.
“The deterioration of business sentiment that has taken place over the last three years has been significant and cannot be reversed overnight,” the report said.
The report also noted a trend, de-risk China, “investments begin to shift out of China as de-risking strategies emerge.”
Eleven percent of European firms have shifted their businesses out of China, and 20 percent have considered doing so. Also, 38 percent have observed “Chinese customers and suppliers shift investments out of” the country.
Moreover, 53 percent of respondents said they have yet to plan to expand their business operations in China in 2023, up 15 percent from a year ago. 75 percent have reviewed their supply chain strategies over the past two years.
“As a result of China’s more challenging and unpredictable business environment, European companies’ investment and operational strategies are being adjusted accordingly,” the report said.
The two top reasons for European Union businesses to shift or consider moving out of China include minimizing China’s decoupling impact and increasing the resilience of their supply chains. This trend shows that investors intend to “de-risk and build resilience, rather than for purely business reasons.”
“The negative trends we see in this year’s survey are concerning and reflect both recent challenges—brought by uncertainties in China’s policy environment and rising geopolitical tensions—and the persistence of long-standing market access barriers,” according to Jens Eskelund, president of the European Union Chamber of Commerce in China.
