In 2020, when China rebounded quickly from the pandemic relative to the rest of the world, the country came to be viewed as a safe haven for investment.

The EU Chamber of Commerce in China recently advocated Beijing to apply its proven toolbox of pragmatic reforms in the face of economic headwinds and rising geopolitical tensions. While Beijing’s past reform agenda helped ensure stability, propel economic growth and facilitate huge FDI inflow, ideology is trumping the economy now, the chamber noted.

However, adherence to an inflexible COVID-19 policy has led to unprecedented disruptions to business and exacerbated pre-existing challenges, the chamber said in its European Business in China Position Paper 2022-2023 released recently.

“Factors such as favouritism towards state-owned enterprises and increased politicisation of business have further eroded China’s standing as an investment destination. Companies are increasingly viewing the country as less predictable, reliable and efficient, and with geopolitical tensions on the rise, its future is less certain,” the chamber said in a press release.

Inbound investment flows from Europe already indicate a changing trend. Over the past four years, the bulk of European FDI into China has been contributed by just a handful of large companies, while the rest have put their China operations in wait-and-see mode as they evaluate alternative markets that can provide greater certainty, the report observed.

The European Chamber believes that comprehensive market reforms would be the most effective way for China to realise its economic potential and quickly rebuild investor confidence.

However, for China to undertake necessary reforms, it is vital that political space be given to policymakers to ‘make mistakes’, discuss ideas and ultimately change course – something that was previously a characteristic of Chinese policymaking, the Chamber said.

Despite the heightened difficulties facing European companies in China, they are committed to staying and improving the business environment, as illustrated by the 967 constructive recommendations put forward in the position paper, according to the press release.

Fibre2Fashion News Desk (DS)