The European Union Chamber of Commerce says companies are increasingly viewing China as “less predictable, reliable and efficient”.
China’s “inflexible” COVID-19 restrictions and politicization of the economy are eroding its standing as an investment target, a leading European industry group has warned.
The European Union Chamber of Commerce said in a report on Wednesday that companies are increasingly viewing China as “less predictable, reliable and efficient” due to prioritizing ideology over business and pragmatic policy-making.
The business lobby group said Beijing’s ultra-tight “dynamic zero-COVID” policy has caused “unprecedented disruption” in the industry, while factors such as favoritism for state-owned companies have further eroded confidence.
The industry body, which represents more than 1,700 European companies in China, said most companies have put their operations in the country into “wait and see mode” and have begun to explore alternative markets, with the bulk of European investment in the past four years has been done by a handful of large companies for years.
“While Beijing’s reform agenda has historically helped ensure stability, spur economic growth and facilitate huge inflows of foreign direct investment, now ideology trumps business,” the industry association said in an accompanying press release.
The European Chamber said Beijing should introduce “broad market reforms” to restore business confidence, which would require giving policymakers the policy space to “make mistakes”, discuss ideas and ultimately change course.”
“European companies are still keen to contribute to China’s economic development, but investments in the country are unlikely to increase as long as China keeps its doors closed and companies increasingly perceive political, economic and reputational risks,” said Jörg Wuttke, President of the European Union Chamber of Commerce in China.
“Companies are also clamoring for transparency in the business environment as they now need to align their China operations with both corporate commitments and new supply chain laws in the EU and the United States.”
China is the latest major economy to apply draconian restrictions like lockdowns and border controls as part of a zero-tolerance strategy aimed at eradicating COVID-19 at almost any cost.
The controversial strategy has taken a heavy toll on the world’s second-largest economy, which narrowly avoided a contraction in the second quarter with gross domestic product (GDP) growth of 0.4 percent.
Beijing has defended the policy as necessary to save lives and warned against “laying flat” on the virus.