European companies in China weakened by the risks of a “less predictable” market
Faced with a Chinese market “
that has become less predictable
”, says a report from the European Union Chamber of Commerce published this Wednesday March 20, 2024, these companies are forced “
to allocate more resources to prevent risks
”.
A Dolce & Gabbana store in Shanghai, November 22, 2018. © Aly Song / REUTERS
By: Stéphane Lagarde Follow
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With our correspondent in Beijing,
Stéphane Lagarde
For months now, Chinese leaders have been repeating that they are opening their arms wide to foreign investors, but in reality, and since the reopening of the country post-Covid, for these foreign companies, it's been a cold shower!
The emphasis placed by the Chinese government on supply and exports, the weakness of local demand and more generally political pressures, reinforce “
a feeling of general insecurity
”, say the respondents.
At the enterprise level, the volume, complexity and severity of risks businesses face has grown exponentially in recent years as politics has infiltrated the business environment.
55% of the 1,700 members of the European Chamber of Commerce in Beijing report a business climate that is “
more politicized than last year
”
and had to strengthen their country risk management
.
Marcus Hermann, director of the China Macro Group who participated in the study.
“
One element that is part of risk management is the new rules on cybersecurity.
This is something that has certainly affected foreign companies, because it is a regulatory intervention that tries to protect the material.
But it is also about governing data protection as well as cross-border data flows.
So this is, I think, one of the examples where the impact is most obvious.
»
Self-sufficiency strategy
The
chamber's report also specifies that
China
's self-sufficiency strategy
has led to the replacement of certain imports by Chinese suppliers, following incentives or even "
pressure
" from municipalities and provincial governments, which has clearly played against the Europeans.
“Something will have to change because Europe cannot simply accept that the strategically viable industries constituting the European industrial base are withdrawn from the market
,
”
declared Jens Eskelund.
Companies are caught in the grip of China/EU tensions, particularly since Brussels launched an anti-subsidy investigation into exports of Made in China electric vehicles in 2023.
Beijing says it does not understand Brussels' triptych, which considers China as “
a partner, a competitor and a systemic rival
” at the same time
.
“
This triple positioning is neither consistent with reality nor viable in practice
,
”
criticized the
Chinese Minister of Foreign Affairs
during a press conference on the sidelines of the meeting of the Chinese Parliament at the beginning of the month.
“
It’s like a car is at an intersection and the red, yellow and green lights are all on.
We would no longer know which direction to go
,” Wang Yi pretended to wonder.
In this context, are European companies at risk of leaving the China ship?
“
Should I stay or should I go?”
»
Things are in reality more mixed, note the authors of the report.
“
According
to surveys and general market observations, very few companies choose to leave the Chinese market
,” says Marcus Hermann.
There are a variety of strategies that companies adopt that we have outlined in this report.
Some
are strengthening their presence on the Chinese market to increase their location, others on the contrary decide to move their investments and/or part of their operations outside the country.
There is also a wait-and-see approach, with a
"China + 1" strategy
in which the group's headquarters allocates new
investments
to other regions such as Southeast Asia and less to China, in order to fundamentally diversify its commitment in the Asia-Pacific region.
»
Demand outsourcing
For
“
navigating risks
”
and better understand them, surrounding yourself with consulting firms is
“
indispensable
” for foreign companies and can even become a
"
competitive advantage
"
in China, considers the Chamber.
The notion of risk reduction (de-risking) has emerged in recent months as a central element of the EU's policy for the security of its supplies, underlines AFP.
The approach “
does not target any country in particular
”, but became a necessity after the Covid-19 crisis and the Russian invasion of Ukraine, the report continues.
Because the imbalance in the relationship remains glaring.
The EU's trade deficit with China reached 291 billion euros in 2023, after the ten-year record of 397 billion euros in 2022, described as
"
the worst deficit in the history of humanity
"
by the current ambassador of the European delegation in China.
“
It is difficult for me to imagine that Europe will sit back and watch the accelerated deindustrialization of Europe due to the outsourcing of weak domestic demand to China
,
”
added Jens Eskelund.
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