China’s Unpredictability Is “Poisonous” For Its Business Environment, EU Chamber Says

Unpredictability in China at a time when much of the world is moving beyond the Covid pandemic is “poisonous” for companies doing business in the country, according to a new report today by the European Union Chamber of Commerce in China

“The only thing predictable about China today is its unpredictability, and that is poisonous for the business environment,” said Bettina Schoen-Behanzin, vice president of the European Union Chamber of Commerce in China.

“Increasing numbers of European businesses are putting China investments on hold and re-evaluating their positions in the market as they wait to see how long this uncertainty will continue, and many are looking towards other destinations for future projects,” Schoen-Behanzin said.

While most European companies in China posted positive revenues and were profitable in 2021, doing business became more difficult for the majority, according to the newly released European Business in China Business Confidence Survey 2022 produced in partnership with Roland Berger.

“China remains crucial for most European businesses, both as an outlet for products with strong competitive advantage, and as a powerful industrial production base. It is too big and too important to scale down, but a holistic and stable framework is needed,” said Denis Depoux, global managing director of Roland Berger which produced the report with the Chamber. “The deterioration of internal and external business conditions, with 13% more survey respondents finding business in China more difficult in 2022, even before the Covid resurgence, contrasts with the crucial role of China for them.”

“As the rest of the world returns to a pre-pandemic level of normality, and China’s stringent Covid-19 policy exacerbates the challenges of doing business, many European Chamber members are questioning just how many eggs they are willing to keep in their China basket,” the Chamber said in a press release today.

“In response to mounting uncertainty—resulting from both China’s COVID-19 strategy and Russia’s invasion of Ukraine—and to minimize their exposure to potential geopolitical shocks, European companies’ China operations are being increasingly siloed,” the Chamber said. “Eight times as many respondents reported plans to onshore supply chains into China as those looking to offshore.”

Two thirds of European businesses saw revenue increases during 2021; however, doing business also became more difficult year-on-year for 60%, the survey found.

Covid-19 was the top issue faced by business in 2021, ranking as a top-three challenge for 49%; China’s economic slowdown, a top three issue for 24%, ranked second, the survey found. Half said that the business environment became more politicized in 2021; 42% of firms saying regulatory barriers were resulting in missed business opportunities.

The European Chamber has more than 1,700 members in nine cities: Beijing, Nanjing, Shanghai, Shenyang, Guangzhou, Shenzhen, Chengdu, Chongqing and Tianjin. Members include BNP Paribas, BASF, Ikea, Maersk, and Lufthansa.

In the same vein as European businesses reporting difficulties in China, the vast majority of U.S. firms in Shanghai are cutting revenue forecasts for 2022 in the wake of “zero-Covid” policies that left much of the international business hub of 26 million people locked down in April and May, according to a survey by the American Chamber of Commerce in Shanghai published earlier this month.

Some 93% of respondents have lowered their revenue projections for the year. A quarter of respondents expect revenues to be more than 20% lower than originally expected, AmCham Shanghai said. A quarter of consumer and services companies have decreased their investment plans, as have 20% of manufacturers, AmCham said. “Just one respondent plans to increase their investment in China,” it noted.

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