Foreign Business Confidence in China Hits Record Low, US, and European Firms Look to Divest
Foreign businesses in China are experiencing their lowest levels of confidence in years, according to reports from US and European enterprise lobbies. This sharp decline in confidence can be attributed to a combination of slowing growth and geopolitical tensions that are negatively impacting investment prospects. While there was initially an uptick in consumer spending after China ended its strict zero-Covid policies, the recovery has been complicated by weak consumption, a crisis in the property sector, and soft demand for China’s exports.
American businesses in China are reporting record-low optimism and are increasingly considering divesting from the country, according to the American Chamber of Commerce (AmCham) Shanghai. In a recent report, AmCham stated that 2023 was expected to be the year when investor confidence and optimism would bounce back after years of Covid disruptions and restrictions. However, the rebound has failed to materialize, and business sentiment continues to deteriorate.
Similarly, the Chamber of Commerce of the European Union expressed concerns about European companies’ perception of the Chinese market. The chamber, which represents approximately 1,700 EU companies based in China, noted that the Chinese market’s predictability, reliability, and efficiency have steadily eroded. European companies that once thrived in China have reevaluated their assumptions about the Chinese market after three turbulent years.
Foreign firms have long complained about vague and arbitrary regulations in China, as well as preferential treatment given to local companies. Half of European companies surveyed reported obstacles to their activities in China, while 62% said they missed opportunities. The uncertainty surrounding Chinese laws has fueled concerns among foreign businesses, particularly regarding critical areas such as AI and data governance. The unpredictability of decisions and interpretation of laws by the regulators was among the top concerns voiced by European businesses in China.
AmCham Shanghai revealed that the optimism among respondents regarding the next five years was the lowest ever recorded in their survey. Only 52% expressed an optimistic outlook, down three percentage points from the previous year. When asked about the top three challenges to their companies, 60% of respondents cited US-China relations, while an equal number pointed to the economic slowdown. Around 40% of businesses were planning to or were already redirecting their investments away from China to other countries, with Southeast Asia being the preferred alternative destination.
US policy was identified as the major factor behind the pressure to decouple from the Chinese market, rather than actions by Beijing, according to AmCham. European businesses also pointed to a revision of China’s anti-espionage law, which was introduced in July and has further undermined confidence.
Despite the rising uncertainty, positive developments have been observed between the Chinese and US governments in recent months, offering some hope for stability. Increased communication between Washington and Beijing, as well as measures to promote foreign investment released by the Chinese State Council last month, have been seen as positive signals.
However, questions regarding China’s relationship with foreign enterprises remain. European businesses raise concerns about what kind of relationship China wants to have with them. The annual survey conducted by the Chamber of Commerce questioned the definition of a state secret under Chinese law, highlighting the need for clarity.
As China implements measures to revive its sluggish economy, foreign businesses remain cautious. While uncertainties persist, the hope for stabilizing US-China relations and efforts to attract foreign investment provide some optimism. Nevertheless, the record-low confidence among foreign businesses in China serves as a stark warning of the challenges they face and the need for China to address their concerns.
