The slowdown in both the Chinese and global economies is, along with political tensions and decoupling with the United States, the biggest issues affecting European companies in China, according to the European Chamber of Commerce in China. The number of European companies citing China as their top three destination for future investment fell to a record low, according to the Chamber of Commerce’s annual opinion paper released Wednesday. The EUCCC has been collecting this figure since 2010.
Rising interest rates and inflation have dragged down demand in Europe and the United States, while Chinese firms have struggled with a plunge in prices as the world’s second-largest economy faces the risk of deflation.
Three times as many European companies said their sales from China would decline in 2022 compared to 2021, while China’s importance to global corporate profits fell for the second year in a row, according to the report. It is said that there is “The deterioration in business confidence that has occurred over the past three years is so significant that it cannot be reversed overnight,” the chamber said. The chamber’s findings, based on member opinions from February to early March, show a record number of companies losing business due to market entry and regulatory barriers over the past year.
With President Xi Jinping’s growing focus on national security, and the recent crackdown on consulting firms and due diligence firms in particular, many foreign-owned companies are wondering where the line lies in a market where regulation is often vague.
“Given new and upcoming legislation in Europe and the United States that requires many companies to be more transparent about their operations in China, the trend of supply chain diversification and divestment is likely to continue,” the chamber said. “It is likely to strengthen in the medium term.” Foreign direct investment (FDI) into China has slowed significantly since China lifted its tough COVID-19 restrictions late last year. Dollar-denominated FDI for January to May fell 5.7% from the same period last year.
EU trade deficit with China to widen to €396 billion ($433 billion) in 2022, European Commission President Ursula von der Leyen urges EU to face reduced economic and diplomatic risks to China.