Doing business in China hard for EU firms

European companies in China are facing “less predictable” business conditions in the world’s second-largest economy, a report said on Wednesday, forcing them to allocate more resources to risk management.

The study, published by the European Union Chamber of Commerce in China, sheds light on the increasing challenges for foreign firms with operations in the country.

More than half of those polled 55 percent reported a business climate that is “more political over the past year,” according to a recent survey conducted by the chamber, which represents more than 1,700 companies present in China.

This “general sentiment of uncertainty” has pushed three-quarters of European companies to review their exposure to China and diversify supply chains over the past two years, the survey found.

However, only 12 percent have decided to establish completely new supply chains outside China, while just 1 percent are severing all links with the country.

“With the complexity and severity of the risks that businesses face having grown exponentially in recent years, companies are now having to allocate more resources to risk management and compliance activities than ever before,” the report said.

In order to navigate those risks, investing in due diligence services and detailed supplied chain reviews could become a competitive advantage, the chamber said.

“Derisking” has emerged in recent months as a core pillar of the EU’s economic policy toward China, becoming necessary after the Covid-19 pandemic and Russia’s invasion of Ukraine, the report said.

The term contrasts with the more drastic approach known as “decoupling,” pursued by some policymakers in the United States who aim to isolate China or cut all commercial ties with the country.

The EU views China as a “partner” but also as “an economic competitor and systemic rival,” the report said.

But China’s top diplomat, Wang Yi, criticized this position as “not factual or feasible” during a press conference this month.

“It’s like a car driving toward an intersection, only to find the red, green and yellow lights on at the same time,” he said.

AP PHOTO NOT EASY President of the European Union Chamber of Commerce in China Jens Eskelund (left) arrives at a press conference in Beijing, China, on Wednesday, March 20, 2024. Uncertainty and ‘draconian regulations’ have drastically raised risks for foreign businesses in China, a report by a European business group said on Wednesday.