European businesses in China reach a ‘tipping point’ on whether to invest more

BEIJING — European businesses in China have grown so discouraged with the outlook for operating in the country that Beijing must act if the companies are to invest further, according to the EU Chamber of Commerce in China.

Growth in China, the world’s second-largest economy, has slowed. In the meantime, China has yet to act significantly on years-long pledges to improve the business environment, leading to “promise fatigue,” the chamber said in its latest position paper published Wednesday.

“We do believe actually that we are in sort of a tipping point situation. … If you want to do something, the time is now,” Jens Eskelund, president of the chamber, told reporters ahead of the paper’s release.

Foreign direct investment into China fell by 29.6% during the January to July period versus a year ago, according to China’s Ministry of Commerce. It attributed the decline to last year’s high base.

The ministry and other Chinese government departments have sought to address some foreign business concerns, such as data transfer and obtaining travel visas.

Over the weekend, Chinese authorities announced that foreign businesses would be able to wholly own hospitals in certain cities and regions, as well as carry out human stem cell research and treatment in certain areas. The government also said it would lift restrictions on foreign investment in manufacturing.

Such changes are part of Beijing’s pledges to reduce what it calls the negative list, a collection of industries off-limits to foreign businesses in the country. Critics say that Beijing has tended to restrict foreign entities from operating in lucrative industries such as financial services until domestic players have gotten off the ground.

However, Eskelund said such developments, while encouraging, did not move the needle enough for European businesses, especially when members’ optimism on profitability in China for the next two years is at an all-time low.

“Maybe you need to accelerate what you do with [red tape] in view of market conditions that do not appear to yield the same returns as they did pre-Covid,” he said.

China’s economy is expected to grow by around 5% this year, according to official targets. But retail sales only rose by 2% in June from a year ago, and 2.7% in July. Imports in U.S. dollar terms only rose by 0.5% in August from a year ago, indicating persistent sluggish domestic demand.

“Longer term, I don’t think that anybody really questions the future potential of China and what China can do. That’s not what’s at stake here,” Eskelund said.

“We see amazing supply chains here, we see the longer-term potential of China as a consumer market,” he said. “We just need to see some action that that actually led us to believe that this is something that comes within sort of a time frame that makes it reasonable to actually make the investments.”