European companies cool on plans to invest in China, report shows

A growing number of European companies have given up hope that things will get better, the European Chamber of Commerce in China has warned as it offers more than 1,000 proposals on how Beijing could improve the environment for European businesses.
“A sentiment is emerging at company headquarters and among shareholders that the returns on China investments are no longer commensurate with the risks faced. Profit margins in China are equal to or below the global average for approximately two-thirds of European chamber members and pessimism about future profitability is at an all-time high,” it says.
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In the past, big multinationals could leverage their global operations to spread the cost of a downturn in business in China. But in recent years, many firms have adopted an “in China for China” strategy so that their operations there effectively become Chinese companies with foreign shareholders.
European companies continue to operate at a disadvantage compared to Chinese domestic competitors, however, and a raft of new national security laws have left many unsure about what activities are now allowed. As the chamber points out, this challenging environment for European businesses alongside the huge trade imbalance with Europe weakens Beijing’s hand in negotiations with the EU.
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China is lobbying individual EU member states in an effort to block or ease a proposed hike in tariffs on electric vehicles. But in his report on European competitiveness this week, Mario Draghi warned of the threat massive imports of electric vehicles could pose to employment, productivity and economic security.
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Most of the European chamber’s proposals are modest and many involve the implementation of policies already officially approved by Beijing. Putting them into action will not prevent Europe from protecting its industrial base but it could strengthen the argument of those in the EU who are calling for moderation.