The EU-China Business Association and the European Union Chamber of Commerce in China organized a webinar focused on European Business in China: Position Paper 2023/2024 on 15 December 2023.
Ms Gwenn Sonck, Executive Director, EU-China Business Association, introduced the subject of the webinar and the speaker. This year's Position Paper outlines how China's post Covid-19 recovery has stalled and what Chinese policymakers can do to address this. The Paper details the challenges faced by European companies operating in China. The recent 24th EU-China Summit in Beijing marked a significant milestone as the first in-person meeting between European and Chinese leaders at the highest level since 2019 and this also shows the importance the EU attaches to its relations with China. At the same time it builds more trust between both sides as trust cannot be built through a computer screen. The EU stressed the need of a more balanced relationship, a level playing field and reciprocity. The Chinese government is on a charm offensive to attract more foreign investment and released 24 measures to optimize the business environment.
Mr Adam Dunnett, Secretary General, European Union Chamber of Commerce in China, presented the conclusions of the European Business in China Position Paper 2023/2024. The faltering economic recovery after the post Covid-19 reopening underlines the need to regain momentum. The big question is what kind of relationship does China want to have with foreign enterprises. China could be an alluring investment destination if there would be greater market access and better regulation, but inconsistencies and ambiguity over certain requirements can pose barriers.
The Position Paper listed five high-level key recommendations:
1. Increase productivity by giving greater play to market forces. More support for the private sector and foreign investments was announced in the summer of 2023 and non-taxable allowances for foreign nationals were extended by four years. But to increase momentum, further action is needed. The 1,058 recommendations in the Position Paper provide a blueprint for China to restore business confidence.
2. Reduce corporate risk by de-politicizing the business environment and removing ambiguity from legislation. Chinese legislation increasingly emphasizes “national security”, e.g. China's updated anti-espionage and foreign relations laws. There is also ambiguity in earlier legislation. EU legislation requires thorough due diligence, following the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
3. Optimize policymaking by allowing space for discussion and constructive feedback. China's red lines are becoming more blurred and the scope of issues deemed as “sensitive” is constantly expanding. Access to important information on the economy and regulations is significantly curtailed for foreign entities, and the publication of certain datasets was discontinued.
4. Address socio-economic challenges to boost consumption. Domestic consumption could play a significant role in China's economic recovery, but an anticipated release of pent-up demand did not take place, leading to a heightened sense that precaution is necessary in the face of uncertainty. More support is needed on the demand side.
5. Maintain a balance between economic recovery and the low carbon transition. In 2022 coal still accounted for more than 56% of China's total energy consumption. To ensure China reaches its 30/60 goals, the challenges companies face in transitioning to green energy need to be addressed. A positive sign is that the State Council's opinions include a point on improving foreign companies' access to green energy.
There is still enormous potential for European companies to continue making valuable contributions to China’s development, particularly if self-reliance efforts are focussed on narrow and precisely-defined national security concerns. If provided with greater market access, 63% of respondents to the BCS 2023 said they would consider expanding their footprint in China. In segments of China’s economy that have continued to open and become better regulated, European companies have increased their investments. When Chinese policymakers follow up on pledges to improve conditions for foreign businesses, it gives a visible boost to investor confidence.
China's self-reliance campaign, the EU's de-risking and the U.S.' own version of de-risking have a common root: overexposure to any one source can lead to major challenges if that source suddenly becomes unavailable.
Looking forward to the year ahead, Mr Dunnett said that there are positive developments but also some reversals and the Chamber would continue to speak out.
A Q&A session concluded the webinar. Q.: In which areas do you see the biggest opportunities for EU-China cooperation? A.: We can mention green finance and green projects; health issues; some cooperation on AI; and China's aging society.
