"Rather Leave"... 64% of European Companies Say Doing Business in China Has Become Difficult

18% of European Companies "Have Decided or Are Considering Overseas Relocation"
Greatest Concern Over China's Economic Recovery Slowdown

As the Chinese economy loses momentum, the sentiment among European companies operating locally is rapidly freezing.

According to the Wall Street Journal (WSJ) on the 21st (local time), a survey conducted by the European Union (EU) Chamber of Commerce in China targeting 570 companies out of a total of 1,700 member companies found that 64% responded that business had become more difficult compared to last year. This is a 4% increase from a year ago and the highest level since the survey began.

One in five companies responded that they have decided or are considering moving their investments overseas. Eleven percent of all respondents said they have already moved or decided to move investments outside China. Seven percent of companies said they are considering relocating their overseas investments.

[Image source=Yonhap News]

The biggest concern among European companies was the slowdown of the Chinese economy. Thirty-six percent of respondents cited the economic slowdown in China as the biggest obstacle to their local business, followed by concerns about the global economic slowdown and US-China geopolitical tensions.

American companies operating in China are also facing difficulties in their local businesses. According to a survey conducted by the American Chamber of Commerce in China in March, half of the US companies responded that investment conditions in China are deteriorating. This is a significant increase from 31% a year ago. The proportion of companies placing China as a priority or considering it among the top three candidates for short-term investment plans dropped sharply from 59% in 2019 to 45% this year. US companies cited US-China conflicts as the biggest challenge, which WSJ noted is a contrast to European companies, who are most concerned about the Chinese economic slowdown.

As European companies feared, pessimism about the Chinese economy is spreading rapidly. Retail sales, which reflect Chinese consumer sentiment, increased by 12.7% year-on-year in May, showing a slowdown compared to the previous month (18.4%). Industrial production in the same month rose by 3.5%, a lower growth rate than the previous month (5.6%), and exports actually shrank by 7.5%, showing negative growth. Meanwhile, the youth unemployment rate for ages 16 to 24 hit a record high of 20.8%.

China plans to introduce economic stimulus measures, including a cut in the benchmark interest rate, but doubts about the effectiveness of these measures have arisen even before they are implemented.

WSJ also reported that revisions to China's counter-espionage law are raising concerns among foreign companies. In April, China revised the counter-espionage law to include "other documents, data, materials, and items related to national security and interests" within the scope of confidential information subject to punishment if leaked. Overseas companies are worried that this regulation is overly broad and vague, potentially causing routine corporate activities to be misunderstood as espionage.

Jens Eskelund, chairman of the EU Chamber of Commerce in China, said, "European companies are not running for the exit but are committed to China," but added, "However, the recent survey showing a decline in business sentiment is a signal that stakeholders in China need to be concerned about the direction the situation is heading."

The difficulty of a quick thaw in US-China relations is also a significant uncertainty for companies. The day after US President Joe Biden criticized Chinese President Xi Jinping as a "dictator," just one day after US Secretary of State Antony Blinken visited China and met with Xi, the US is expected to continue pressuring China with a dual strategy of both hard and soft approaches, tightening its grip on China while avoiding direct conflict.

This content was produced with the assistance of AI translation services.