British Companies in China Much Less Optimistic Than Last Year

British businesses’ overall optimism has seen a very significant decline since last year, according to a British Chamber of Commerce in China report released Tuesday, citing economic uncertainty and regulatory challenges in the Chinese market.

The top regulatory challenges this year were related to cybersecurity, corporate finances, and equal treatment with state-owned companies, the survey found. Only 35% of British businesses believed they were treated equally with their domestic counterparts.

The survey’s 249 respondents, comprised of British businesses across the Chinese mainland, reported an overall positive response to the Chinese government’s efforts to cut red tape and improve intellectual property protections. Those two concerns ranked second and third respectively in last year’s report, but did not make the top ten this year.

“Global economic uncertainty and China’s domestic slowdown stand out as the most concerning trends for firms in the next year,” the report said. While there was some “cautious optimism” about the Foreign Investment Law, due to come into effect on Jan. 1, just under 40% of businesses said it will “have no impact on improving the regulatory environment for their company.”

However, the survey results showed a significant decline in the proportion of businesses that are optimistic about their future in China, falling 11 percentage points from last year to a slim majority of 54%, which the report attributed to “economic uncertainty and regulatory challenges.” About half of the respondents said that doing business had gotten more difficult, up from 31% last year.

Despite increased concerns, 60% of respondents said they intended to increase investment in their China operations next year, with 79% of those businesses citing market potential as the reason. Though only 22% of businesses overall said “regulatory opening” was the main reason they planned to increase investment, 46% of those in the financial services industry said this was their primary consideration.

Most businesses looking to increase investment were located in Shanghai, except for those in the legal, education, and business advisory sectors, which tend to be located in Beijing.

Of those businesses looking to reduce their investment in China operations, the most significant factors were economic uncertainty, increased competition, regulatory challenges, shift in strategy, and higher operating costs. For goods industries, 75% said economic uncertainty was their primary reason, whereas about the same proportion of those in the service industry were concerned by increased competition, the report found.

Navigating security and IT restrictions retained the top spot among regulatory challenges for UK businesses. Accessing or moving company finances jumped up 11 places from last year to be ranked second, followed by competition with state-owned companies, up seven places from last year. Concerns regarding employing foreign staff also jumped seven places to be ranked fifth.

Though British businesses operating in China reported concerns about increasing downward economic pressure and consequences of the U.S.-China trade war, the majority of businesses reported no trade war impacts on demand, sales prices, investment decisions or manufacturing costs.

British businesses in general said they have not been harmed by the U.S.-China trade war, but one-third of those in the goods industries said they had been hit by increased sales prices and 43% of advanced manufacturers saw an increase in manufacturing costs.

Contact reporter Ren Qiuyu (qiuyuren@caixin.com)