More Action Needed on Beijing’s Foreign Business Pledges, EU Chamber Argues

The European Union Chamber of Commerce in China (EUCCC) has emphasized the need for more concrete actions from Beijing to fulfill its promises to eliminate obstacles faced by European businesses operating in China [para. 1]. According to the EUCCC's annual position paper, progress has been limited or non-existent for most of the key points outlined in the Chinese State Council’s 24-point guideline intended to support foreign investment [para. 2].

Although there have been some improvements, particularly in market access and procurement, progress remains insufficient in addressing significant concerns. For example, while the removal of overseas ownership restrictions in the information and communication technology sector is acknowledged, it is limited to just four free trade zones. Furthermore, the Government Procurement Law still places foreign companies at a disadvantage in public tenders [para. 3][para. 4][para. 5].

The revised regulations on cross-border data transfers by the Cyberspace Administration of China have been welcomed for reducing administrative hurdles and costs, yet the EUCCC still calls for greater clarity [para. 6]. Additionally, measures to retain foreign talent and aid business travel, such as extending preferential tax policies and including EU member states in a visa-free travel scheme, have been noted positively [para. 7]. The Chinese Ministry of Commerce claimed that over 60% of measures from the 24-point guideline have been implemented or made substantial progress, citing data from a February roundtable attended by over 60 representatives of foreign-invested companies and business associations [para. 8].

The EUCCC's call comes at a time when European businesses are increasingly pessimistic about their potential for profitability in China, reaching an all-time low this year as per their business confidence survey [para. 9]. Jens Eskelund, President of the EUCCC, highlighted this growing concern among European firms, pointing out the growing risks related to supply chains, lower anticipated profits, continuous barriers to market entry, and regulatory uncertainties [para. 10]. Chinese economic slowdown, lackluster domestic consumption, and overcapacity further exacerbate these concerns [para. 11].

European businesses are taking measures to make their operations more resilient by separating their Chinese operations and supply chains from the rest of the world. This includes onshoring or offshoring parts of the supply chain and localizing personnel, data, and IT systems. However, these measures can lead to miscommunication and operational slowdowns, potentially causing downsizing or closure of operations in China [para. 12][para. 13]. The paper warns that this trend could worsen China-EU relations as European subsidiaries in China have been strong advocates for cooperation [para. 14].

Although there has been improved interaction between the EUCCC, European businesses, and local and central Chinese government officials, these discussions have been largely general rather than specific troubleshooting [para. 15].

China has made various efforts to attract foreign investment. Following last August’s 24-point guideline, a March action plan called for opening more areas to foreign investment. Additionally, a document from the Third Plenum of the party’s Central Committee in July emphasized making equity investment and venture capital operations easier for foreign investors. Recently, an updated "negative list" removed all remaining limits on foreign investment in manufacturing [para. 17].

Despite these efforts, the second quarter saw a record high of $14.8 billion in net foreign direct investment (FDI) withdrawals, marking the second quarterly net FDI outflow since 1998. Net FDI inflows for 2023 also fell to a 23-year low [para. 18][para. 19].