The risks of investing in China are outweighing the benefits, according to the European Business in China Position Paper 2024/2025.
EU Chamber of Commerce in China President Jens Eskelund said China’s status as the “undisputed leader” of FDI is slipping further away as he expressed “concern about there being a tipping point now”.
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The main obstacles that foreign companies face nowadays are not necessarily different than what they were ten years ago. Market access and regulatory barriers have been mainstay complaints since before the pandemic.
However, at the time, China’s rapid economic growth meant that the benefits outweighed the negatives. This made China, with its established infrastructure and a large supply of cheap labour, well-placed to attract FDI.
Post-pandemic, slow consumption has caused growth to lag in the country. The environment for foreign businesses has also been uncertain at times. Raids, strict rules on handling data and tough anti-espionage laws that have seen foreign workers jailed have all made the investment environment more unpredictable.
The rise of export control policies regarding the microchip and advanced computing sector in China is also expected to “significantly impact a substantial proportion of EU companies operating in China”. Almost 25% of respondents to the European Chambers Business Confidence Survey 2024 expect their operations to be affected, while 30% are unsure about the potential impact on their businesses.
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By GlobalDataChina has also been accused of encouraging overcapacity, where output exceeds demand, leading to artificially low prices (this has especially been the case for the electric vehicle sector). If investment in the manufacturing sector continues, paired with low domestic demand, it will lead to higher exports and more trade friction, according to Eskelund. Of the chamber’s members, 42% claim they are suffering from this overcapacity issue.
He urged government officials to aim for a more balanced approach between supply and demand and to focus on policies that will spur domestic consumption.
