European firms are rethinking 'closed' China plans

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Germany’s foreign direct investment in China has increased by about 30% in the first eight months of the year compared to the previous year, China’s Ministry of Commerce said on Monday.

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BEIJING—European companies in China are reassessing their market plans after Covid controls further isolate China from the world this year, said Jörg Utke, president of China’s European Union Chamber of Commerce.

China’s strict Covid policies have restricted international travel and business activities, especially after a two-month lockdown in Shanghai this year.

The tough measures over the past two years initially allowed China to recover from the shock of the pandemic more quickly than other countries.

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

As for European companies, “we are talking about completely recalibrating our view of China over the past six months,” Wuttke said at a briefing for the chamber’s annual China position paper released Wednesday. told reporters at

He said the lockdown and business uncertainty could make China a “closed” and “distinctly different” country that businesses could pull out of.

So far, most companies have not pulled out, only some very small ones, Utke said. But the Chamber of Commerce cannot investigate companies that have decided not to enter China at all, he said.

In my 40 years of coming and going here, I have never seen anything like this where suddenly ideological decisions matter more than economic ones.

Jorg Buttke

President of the EU Chamber of Commerce in China

According to the chamber’s position paper, foreign direct investment from the EU to China in 2020 fell by 11.8% year-on-year. No recent figures were available.

While there is still a “select group of high-profile multinationals poised to inject billions of dollars”, the downward trend in FDI is unlikely to reverse, and European executives are likely to “It has been severely restricted from entering and exiting China to develop major greenfield projects,” the paper said.

China’s economy grew 2.5% in the first half, well below the official target of around 5.5%. Beijing signaled in late July that the country may not meet that target.

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

China has shortened the quarantine time for domestic and foreign travelers. But sporadic lockdowns, whether on the tourist island of Hainan or Chengdu, have increased business uncertainty.

Utke said he expects China to be able to open its borders until late 2023, based on the time required to vaccinate a sufficient number of people.

“Ideology trumps economy”

European companies remaining in China increasingly face an environment where “ideology trumps economy,” the chamber’s position paper said in its executive summary.

“In my 40 years of coming and going here, I have never seen anything like this, where ideological decision-making suddenly becomes more important than economic decision-making,” said Wuttke. rice field. “And it may be amplified by voices from outside America.[n] With sanctions, America cutting China out, I can partly understand why self-reliance is high on the agenda. “

He was referring to China trying to build its own technology and other industries over the past few years.

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

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The Chamber of Commerce did not specifically say what this ideology consists of, but said China’s Covid policy embodies the country’s “break away from the rest of the world.”

Utke said despite lengthy candid conversations with Chinese government officials, policy has not changed.

“I think these people are torn between what they have to do and what they could possibly do,” he said. “So [there’s] Very strict, very clear instructions from the top, what this should be, that’s the ideology. How can you challenge ideology? “

Chinese President Xi Jinping said earlier this month that China was “continuing its response to Covid-19 and promoting its economic and social development in a well-coordinated manner.”

“China has entered a new stage of development,” Xi Jinping said, adding that “China’s door of opening up, friendship and cooperation is always open to the world.” His remarks came during his first overseas trip to Kazakhstan and Uzbekistan since the pandemic began. During that time he met with the leaders of several countries in the region.

In recent years, China’s leaders have sought to rally the country around the ruling Communist Party and his “Great Rejuvenation of the Chinese Nation” plan. I plan to fix it.

Huge market in China

Foreign companies already in China generally stay where they are for the time being.

Even if China’s growth slows, its low size and base “actually make a compelling case.” [for foreign businesses]we’re still going to make it,” Wuttke said.

Some, especially the German car giants, are investing more.

In the first eight months of the year, foreign direct investment from Germany increased by around 30% year-on-year. This is a faster pace than the 23.5% pace recorded in the first seven months, China’s Ministry of Commerce said on Monday.

However, the ministry did not release the latest figures for investment from the United States.Official data showed an increase of about 36% in the first seven months of this year.

Foreign companies can still find opportunities in certain areas.

Utke said China is improving access to its domestic market, albeit in areas where local populations are already dominant or are “craving” foreign investment. , frankly, I will stop working on this paper.”

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