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EU-China Opinion Pool: EU-China relations after the Party Congress

EU-China Opinion Pool: EU-China relations after the Party Congress

The 20th National Congress of the Chinese Communist Party (hereinafter: the Party Congress) signaled a continuation of Xi Jinping’s leadership, emboldening commitment to party policies now in full compliance with Xi Jinping thought. Having had some time to pore over the finer details of Xi’s work report, selected experts take a look at its implications for EU-China relations.

In this round of MERICS’ EU-China opinion pool, compiled by MERICS Analyst Grzegorz Stec, we have asked a number of experts: 

What does the outcome of the Party Congress mean for the EU and EU-China relations?

To read the EU-China Opinion pool please click here.

Our sincere thanks to the team at MERICS for sharing this information.

 

 

The Chosen Few: A fresh look at European FDI into China - Rhodium Group

After decades in which China felt like a one way bet for European firms, market conditions have become far more challenging due to restrictive COVID-19 policies, slowing economic growth and rising geopolitical tensions. Against this increasingly uncertain backdrop, we have taken a close look at European (EU+UK) FDI in China to assess the current state of investment on the ground, and shed light on how it has evolved over the past decade. Our key finding is that European investment has grown much more concentrated, both in terms of the companies that are investing there, the countries they come from, and the sectors in which they operate. While a handful of large firms, many of them German, continue to pour money into their China operations, many other firms with a presence in China are withholding new investment. At the same time, virtually no new European firms have chosen to enter the Chinese market in recent years. And acquisitions of Chinese firms have stalled, with greenfield investments increasingly dominating the FDI landscape.

Our findings point to a widening gap in how European firms perceive the balance of risks and opportunities in the Chinese market. They also suggest that a more nuanced perspective on the issue of European corporate dependencies is needed. From a direct investment point of view, it is wrong to talk about a broad-based dependence of European, or even German, companies on the Chinese market. As policymakers in Berlin and other European capitals consider measures to reduce economic dependence on China, they would be wise to take the growing concentration of corporate risks into account.

To read the full Rhodium Group research note please click here.

Our sincere thanks to the team at Rhodium Group for kindly sharing this information.

European Chamber Advocates for Beijing’s Return to Reform Agenda

 

Beijing, 21^st September 2022 – The European Union Chamber of Commerce in China today released its European Business in China Position Paper 2022/2023 (Position Paper), advocating for the Chinese Government to apply its proven toolbox of pragmatic reforms in the face of economic headwinds and rising geopolitical tensions.

While in the past Beijing’s reform agenda helped to ensure stability, propel economic growth and facilitate huge inflows of foreign direct investment, now ideology is trumping the economy.

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. However, adherence to an inflexible COVID-19 policy has led to unprecedented disruptions to business and exacerbated pre-existing challenges. 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.

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 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.

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 2022/2023. As the European Chamber’s most important publication and the cornerstone of its annual advocacy plan, the Position Paper was compiled by its 35 working groups and sub-working groups over a nine-month period.

“European companies are still eager to contribute to China’s economic development, but investment into the country is unlikely to increase while China keeps its doors closed and companies perceive political, economic and reputational risks to be mounting,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China. “Companies are also crying out for transparency in the business environment, as they must now align their China operations with both corporate pledges and new supply-chain legislation in the EU and the United States.”

Download the report, please click here.

中国欧盟商会倡议中国政府重拾实干精神，回归改革道路

        2022年9月21日，北京——中国欧盟商会今日发布《欧盟企业在中国建议书2022/2023》（简称《建议书》），倡议中国政府为应对经济逆风和地缘政治紧张局势，重拾实干精神，回归改革道路。昔日，改革开放曾助力维护社会稳定，推动经济发展，吸引大量外商直接投资。如今，政治任务却优先于经济发展。

        2020年，当世界各国仍处于新冠疫情的水深火热中时，中国迅速恢复并成为安全的投资天堂。但是政府固守防疫政策严重影响商业发展，并加剧其他社会问题。对国有企业的支持、商业政治化日益加剧等问题逐步降低中国的投资吸引力。企业认为中国市场的可预测性、可靠性和效率逐步降低。随着地缘政治紧张局势加剧，未来发展难以预测。

        这从欧洲对华直接投资可见一斑。过去四年，欧洲对华主要直接投资仅来自少数大型企业。其余企业持观望态度，他们维持在华业务现状，积极考虑其它更为稳定的投资选择。

        中国欧盟商会坚信，全面实行市场改革是发挥中国经济潜力、迅速重建投资者信心的最有效措施。由此，为决策者提供政治空间“试错”、探讨想法并最终重归正轨至关重要。这种决策机制曾一度是中国政策制定的特色流程。

        尽管欧盟企业在中国面临巨大困难，但是仍愿与中国风雨同舟，共同改善商业环境。这在《建议书》中提到的967项建设性建议可见一斑。该《建议书》由35个工作组和子工作组历时九个月编撰而成，是中国欧盟商会最重要的刊物和年度工作计划的基石。

        中国欧盟商会主席伍德克表示：“欧洲企业仍愿为中国经济发展作贡献，但由于中国国门紧闭，欧洲企业难以预测日益复杂的政治、经济和声誉风险，暂无计划增加投资。同时，为将在华业务对标企业承诺以及欧盟和美国的新供应链立法，企业强烈呼吁商业环境透明化。”

点击这里下载报告全文。

EU-CHINA Relations - engaging with a systemic rival

BusinessEurope has just published its latest EU-China policy paper.

The press release can be found here and the full report can be accessed below:

Download Position Paper_EU-China relations - Engaging with a systemic rival

Our sincere thanks to BusinessEurope for sharing this information.

 

Watching China in Europe with Noah Barkin July 22 GMFUS

 

 

To view the latest July 2022 insights from Noah Barkin of the EU-CHINA relationship please visit GMFUS here.

To sign up to this excellent newsletter kindly click here.

Our thanks to the German Marshall Fund US for kindly sharing this information.

EUCCC publishes European Business in China Business Confidence Survey 2022

On 20^th June, the European Union Chamber of Commerce in China, in partnership with Roland Berger, released its European Business in China Business Confidence Survey 2022 (BCS). The annual survey shows that while most European companies in China posted positive revenues and were profitable in 2021, doing business became more difficult for the majority.

As the rest of the world returns to a pre-pandemic level of normality, and China’s stringent COVID-19 policy exacerbates the challenges of doing business, many European Chamber members are questioning just how many eggs they are willing to keep in their China basket.

To download the Report and read more details please click below:

EUCCC 2022 Business Confidence Survey

Our thanks to the EUCCC team for sharing the Report and insights.

Carbon Neutrality - The Role of European Companies in China's Race to 2060

Beijing, 25th May 2022 – The European Union Chamber of Commerce in China (European Chamber), in partnership with Roland Berger, yesterday published Carbon Neutrality: The Role of European Companies in China’s Race to 2060. Based on a member survey and extensive interviews, the report identifies areas where EU-China cooperation can be deepened so that China can front load the technologies it needs to accelerate its carbon neutrality drive.

Driven by stringent environmental regulations and consumer demand, and guided by their global corporate carbon neutrality pledges, European businesses are well placed to help China peak carbon emissions before 2030, and push towards carbon neutrality in 2060. The report finds that 67 per cent of European companies operating in China are already pursuing carbon neutrality, and 40 per cent have established China focused decarbonisation teams, many of which report directly to the board.

However, three sets of barriers currently prevent European firms from fully contributing to China’s carbon neutrality drive.

Read press release in full.

Download English-CARBON NEUTRALITY- THE ROLE OF EUROPEAN BUSINESS IN CHINA'S RACE TO 2060

Download 中文-碳中和：欧洲企业助力中国实现2060愿景

 

Flash Survey Report: China’s COVID-19 policy and Russia’s war in Ukraine cause severe disruptions to European business in China

Beijing, 5^th May 2022 – The European Chamber, in partnership with Roland Berger, today released a survey on the impact that China’s COVID-19 policy and Russia’s war in Ukraine are having on European business in China. The results show that both factors are creating severe challenges to European business operations, with logistics suffering the most overall. Significantly, as a result of China’s COVID-19 policy, 23% of respondents are now considering shifting current or planned investments out of China to other markets—more than double the number that were considering doing so at the beginning of 2022, and the highest proportion in a decade—and 7% are considering the same due to the war in Ukraine.

The introduction of more stringent COVID-19 containment measures in 2022, with China imposing full or partial lockdowns in at least 45 cities, is causing massive uncertainty for businesses. Three quarters of respondents report the measures have negatively impacted their operations, most acutely on logistics/warehousing, business travel and the ability to conduct face-to-face meetings, which have had a negative impact for 94%, 97% and 94% of respondents respectively.

Supply chains have taken a pounding, both upstream and downstream, with 92% of companies being impacted by measures such as China’s recent port closures, the decrease in road freight and spiralling sea freight costs.

More than a quarter of European businesses report headcount decreases because of China’s COVID-19 policy, with this happening most in the education (80%), legal (46%), retail (43%) and cosmetics (40%) industries. Other key findings include the following:

• 60% of respondents have decreased their 2022 revenue forecasts.
• 91% of respondents believe China should focus on vaccinating the entire population, including those over 60; 82% believe that positive cases with no or mild symptoms should be permitted to quarantine at home to alleviate pressure on the health system; and 82% believe that the best mix of vaccinations and boosters should by permitted, including making foreign mRNA vaccines available to all residents in China.
• 78% of respondents feel that China is a less attractive investment destination as a result of its more stringent COVID-19 restrictions.
• The war in Ukraine has also made China a less attractive investment destination for a third of respondents. The war is exacerbating challenges faced by businesses as supply chains disintegrate. Nearly two thirds of respondents have faced disruptions transporting goods to and from Europe. In addition, rising material and energy costs are having a negative impact on 63% and 58% of respondents respectively.

“Our members are willing to weather the current storm, but if the current situation continues, they will of course increasingly evaluate alternatives to China,” said Jörg Wuttke, president of the European Union Chamber of Commerce. “A predictable, functioning market is better than one that, despite having high growth potential, is volatile and suffers from supply chain paralysis.”

“The uncertainty caused by the stringent and dynamic COVID-19 policies impedes the ability for European companies to make sound business decisions, in an overall deteriorating economic context due to the impact of the war in Ukraine,” said Denis Depoux, global managing director of Roland Berger. “A clearer crisis exit strategy would help maintain confidence in a European business community still highly committed to Chinese markets.”

Download the report.

 

中国疫情防控政策与俄乌冲突对欧洲在华企业产生严重影响

      北京，2022年5月5日 – 中国欧盟商会与罗兰贝格今日联合发布关于中国疫情防控政策和俄乌战争对欧洲在华企业所产生的影响的调查报告。结果显示，这两个因素都给欧洲企业的商业运营带来了严重挑战，其中物流业所受的整体影响最大。值得关注的是，中国为遏制疫情而采取的严格防控措施导致23%的受访企业正考虑将现有或计划中的对华投资转移至其他市场。这一结果与2022年初有此想法的企业数量相比，增加了一倍多；这也是过去十年间达到的最高值。另有7%的受访企业表示，俄乌战争导致他们正考虑取消现有或计划中的对华投资。

      2022年，随着国内各地落实更为严格的疫情防控措施，中国已有至少45座城市实施了全面或局部封控，给企业生产经营带来了巨大的不确定性。四分之三的受访企业表示，公司整体运营受到严重影响，主要集中在物流仓储压力、商务旅行暂停以及线下会议取消这三方面，受影响企业分别占94%、97%和94%。

      中国的港口关闭、公路货运量下降以及海运价格飙升等一系列原因导致供应链上下游面临严峻考验，92%的受访企业受到严重影响。

      在中国严格的防控措施下，逾四分之一的欧洲企业遭遇人才流失，流失率最高的行业集中于教育（80%）、法律（46%）、零售（43%）和化妆品（40%）。

      其他主要结果包括以下几点：

• 六成受访企业预计2022年收入将有所下滑。   
• 91%的受访企业认为中国应积极推进全民疫苗接种，尤其是提高60岁及以上易感人群和高危人群的疫苗接种率；82%的企业建议，应允许无症状感染者或轻微症状感染者实行居家隔离，以减轻公共医疗系统的压力；82%的受访企业建议国内应推广新冠疫苗序贯加强免疫接种，并早日投入使用mRNA疫苗。
• 78%的受访企业认为，在国内严格的疫情防控政策下，中国市场作为投资目的地的吸引力下降。
• 三分之一的受访企业表示，俄乌战争导致中国作为投资目的地的吸引力下降。战争导致的供应链断裂正在进一步加剧企业面临的挑战。近三分之二的受访企业面临往返中欧的物流中断。此外，原材料和能源价格的上涨分别给63%和58%的受访企业带来挑战。

      “我们的会员企业愿意咬紧牙关渡过眼前困难，但如果现状持续下去，更多企业将开始评估替代中国市场的其他方案，”中国欧盟商会主席伍德克表示，“与一个潜力巨大但是不稳定而且供应链濒临瘫痪的市场相比，可预测性强且运作正常的市场更具吸引力。”

      “特别是在乌克兰战争的影响导致整体经济形势严峻的情况下，严厉及具有动态性的疫情政策造成的不确定性阻碍了欧洲企业做出合理商业决策的能力。因此，一个更为清晰的应对危机退出策略，将有助于欧洲商界保持对中国市场的信心。” 罗兰贝格全球管理委员会联席总裁戴璞先生说道。

Chinese FDI into Europe - trends and insights from The Rhodium Group & MERICS

 

 

The times when China invested vast amounts of capital in Europe are over for now, but Chinese investors are focusing their interest on promising start-ups in high-tech sectors. This is a trend that policymakers and business leaders in Europe should keep an eye on, as the authors of the new study "Chinese FDI in Europe - 2021 Update" by Rhodium Group and the Mercator Institute for China Studies (MERICS) note.

Chinese outbound investment to the rest of the world stalled in 2021, increasing by just 3 percent to USD 114 billion (EUR 96 billion). China’s global outbound M&A activity even slipped to a 14-year low, with completed transactions totaling just EUR 20 billion.

China’s FDI in Europe (EU-27 and the UK) rose but remained on a multi-year downward trajectory. Last year, completed Chinese FDI in Europe increased 33 percent to EUR 10.6 billion, bouncing back after a sharp decline caused by the Corona pandemic in 2020. Still, 2021 was the second lowest year (above only 2020) for China’s investment in Europe since 2013.

The takeover of Philips’ domestic appliances business by Hong Kong based Hillhouse Capital made the Netherlands the biggest destination for Chinese investment in 2021, followed by Germany, France and the UK. Consumer products, automotive (NEV batteries), health, pharma and biotech, ICT, and energy were the top sectors.

Overall, the nature of Chinese investment in Europe is changing. The share of Chinese state-owned investors fell to a 20-year low, concentrating on energy and infrastructure projects in southern Europe. After years of being dominated by M&A, Chinese investment in Europe has become more focused on greenfield projects, which reached a record value of EUR 3.3 billion in 2021.

Chinese venture capital (VC) investors are pouring into European tech startups. In 2021, Chinese VC investment in Europe more than doubled to a record EUR 1.2 billion. This investment was concentrated in the UK and Germany, and focused on a handful sectors including e-commerce, fintech, gaming, AI and robotics.

Two authors of the study commented on their findings:
Agatha Kratz, Director at Rhodium Group: "The nature of Chinese investment in Europe has fundamentally changed in recent years. The days of multi-billion-euro acquisitions in strategic sectors may well be behind us. In their place, we are seeing Chinese companies setting up their own plants in Europe, particularly in areas where they enjoy a competitive advantage, like electric batteries. Chinese firms are also increasingly active investors in European start-ups. These are not necessarily alarming trends as such investments can contribute positively to European economic activity. But they should be closely monitored by European policymakers as they reassess the risks of economic engagement with China."

Max J. Zenglein, Chief Economist at MERICS:

“Compared to the peaks around 2016, Chinese investments in Europe remain stuck at low levels. However, the fact that Chinese M&A activity in Europe increased again in 2021 while China’s global M&A fell, shows that Europe remains an attractive investment destination. But at these reduced levels any movement is vulnerable to a single large deal that can push investment up or down. In the current difficult economic and regulatory environment Chinese in Europe are unlikely to pick up significantly anytime soon.”

You can read and download the study “Chinese FDI in Europe: 2021 Update” by Agatha Kratz, Max J. Zenglein, Gregor Sebastian and Mark Witzke here.

Our sincere thanks to both The Rhodium Group and MERICS for kindly sharing this Report.

International Business in China - impact of Covid and Ukraine

Beijing/Guangzhou/Shanghai, March 31, 2022 - With major Chinese cities in lockdown and an ongoing devastating war in Europe, German companies in China are increasingly anxious about their businesses, a flash survey conducted by the German Chamber of Commerce in China shows.

Due to the war in Ukraine, for over half of the responding companies, the current geopolitical crisis impacts their headquarters’ China strategy. One third of respondents are putting planned business or investments on hold. 46% of the responding companies currently see a decrease in the attractiveness of the Chinese market compared to other markets. The war in Ukraine massively affects logistics from or to Europe and raises costs for energy and raw materials.

In addition, the current COVID-19-outbreak in China strongly disrupts German companies’ business operations, such as logistics, production, and the entire supply chain within China. Current COVID-19-prevention measures lead to around 50% of companies reporting a complete disruption or a severe impact on logistics, warehousing, and supply chain.

“What companies need now are signs of stability. We encourage the Chinese and European leaders to send positive signals at the upcoming EU-China Summit in contributing to world peace.”, states the All-China Board of the German Chamber of Commerce in China. “Being in the middle of the current COVID-19 wave in China, the German business community strongly needs an indication of the direction of the Government’s COVID-strategy, to minimize the severe impact on business operations and supply chains. Currently, timely and transparent communication on the next steps and measures are urgently required.”

Key Findings of the Flash Survey

Impact of the war in Ukraine:

• 46% of the surveyed German companies in China’s logistics to, from, and through Europe are completely or severely impacted by the current geopolitical crisis 
• 55% of German’s companies business operations are completely or severely impacted by rising energy and material costs
• 57% of the respondents report that the current geopolitical crisis impacts their headquarters’ China strategy
• Due to the current geopolitical crisis, 32% of German companies expect planned business or investment in China will be put on hold. 10% report that current business might be moved out of China and 27% expect that the diversification in Asia will be accelerated.
• In contrast, respondents also report that more parts of the supply chain will be shifted to China (23%), localization of business functions (R&D, etc.) will be accelerated (22%), and further business or investment will be allocated to China (14%)
• For 46% of the respondents China’s attractiveness as opposed to other markets decreased due to the current crisis

Impact of COVID-19:

• 51% of German companies’ logistics and warehousing and 46% of German companies’ supply chains are completely disrupted or severely impacted by the current COVID-19 situation in China. Only around 7% report no impact in these business operations. Furthermore, also production and manufacturing (31%), staffing rate (28%), and demand (29%) are completely disrupted or severely impacted for a significant portion of German companies.
• Especially supply chains are severely impacted following the recent lockdowns in China amid the current COVID-19 outbreak: For the upstream supply chain operations, 40% report a complete disruption or severe impact due to raw materials or upstream products not being available. Further, 30% report a complete disruption or severe impact in the transport of raw materials and upstream products to the company. For the downstream supply chain operations, the delivery of finished products to local customers (35%), and export of goods to Europe (33%) is severely impacted or completely disrupted.
• German companies require more support from the local governments with timely communication of measures and policies (66%) green channels for staff (e.g. to be able to commute to work) (59%), green channels for logistics (56%), and facilitation of quarantine procedures for staff (36%)

To download the press release please click here.

 

Our sincere thanks to the German Chamber of Commerce in China for kindly sharing these insights.