China’s Increasingly Inward Turn Could Bring ‘Negative’ Long-Term Impact, EU Firms Say

European businesses are worried about the potential “long-term and negative” cost of China’s pursuit of self-sufficiency, the European Union Chamber of Commerce in China said in its annual position paper.

They are concerned over China’s future growth trajectory with “troubling signs that China is increasingly turning inwards,” the paper said, recommending that China “recommits to increasing integration into the global economy.”

The paper released Thursday also highlighted the chamber’s concerns about the decrease in foreign direct investment and decline in the number of international workers being hired from developed economies.

China laid out its “dual circulation strategy” (双循环战略) in its 14th Five-Year Plan with an emphasis on self-sufficiency amid the Covid-19 pandemic, and the pressure to decouple coming from U.S. policies. The strategy aims to make “domestic and overseas markets reinforce each other, with the domestic market as the mainstay.”

The new approach has worried Western countries which are concerned over Beijing’s policy direction in relation to the rest of the world. However, Beijing has been making efforts to reassure international investors about the country’s continuing reform and opening-up to the global economy.

Last week, China formally applied to join the mega regional trade pact, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. In December, Brussels and Beijing hammered out the EU-China Comprehensive Agreement on Investment (CAI). President Xi Jinping also attended high-profile ceremonies last year celebrating anniversaries of the founding of the country’s two economic zones at the forefront of reform and opening-up in Shenzhen and Shanghai.

In its position paper, the European Chamber said that China’s pursuit of self-sufficiency “runs contrary to the spirit of comprehensive reform and opening up that China began in 1978” and “will have a direct impact on per capita GDP growth.”

“The European Chamber is concerned that China’s economy will continue to underperform if it steers away from bold reforms in favor of a more insular approach,” European Chamber President Joerg Wuttke said in a press release.

The chamber also said “it is of growing concern” that the latest national census shows that there are only 845,697 foreign nationals on the Chinese mainland, representing 0.06% of the total population. It also noted the low number of foreign workers from developed economies who work in international companies in China.

“In addition to a reduction in innovation capacity, a continuing decrease of talent that can add real value to China’s economy will also lead to less foreign direct investment, a curtailment of people-to-people exchanges and a decreased understanding of China among headquarters located in developed economies,” the paper said.

The paper also highlighted concerns over China’s “autonomous and controllable” (A&C) technology guidelines, which encourage Chinese companies to use domestic rather than foreign technologies. In June, a business confidence survey released by the chamber found 34% of respondents believed the requirements will have a negative impact on business.

With the A&C requirements, “European companies report that they feel pressure over the origin of the components and equipment they use, especially with regard to software and digital solutions,” the paper noted.

Contact reporter Cai Xuejiao (xuejiaocai@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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