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Despite Easing of Covid Controls, European Companies Face Difficulty Doing Business in China

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European Businesses Face Obstacles in China's Regulatory Environment

Covid Controls End, but Obstacles Remain

According to the latest survey by the EU Chamber of Commerce in China, the regulatory environment in China became increasingly problematic, even after the country re-opened after Covid. The report cited lingering regulatory hurdles and a feeling of missed opportunities in the country as reasons that businesses are struggling. Despite ending strict Covid controls in December, China has not yet regained the initial economic rebound it experienced then.

Regulatory Environment Reaches Seventh Year of Obstacles

Rules and regulations termed ‘ambiguous’ remain a top regulatory concern for businesses in China according to the survey. Although some attempts to protect personal data and combat alleged monopolistic practices and espionage seem sound, the influence of security concerns on business opportunities remains uncertain. Similar to pre-existing rules more than five years old, companies await clarity in regulation.

European Companies Grapple with Broader Economic Concerns

The survey showed that when it came to business concerns, economic challenges dominated, including general economic growth slowdowns. One example is the tension between the US and China over trade, which ranked third as a concern. China is grappling with underwhelming economic data after a May report revealing the world's slowest growth in some time. Eskelund, the president of the EU Chamber of Commerce in China, admitted anecdotally that members seemed more concerned with China's economy lately.

Foreign Investment Wanes in China

The uncertain macroeconomic environment has impacted foreign investment in China, with only 55% of respondents choosing it as one of their future investment destinations, the lowest since the survey started posing the question in 2010. Based on inquiries at embassies and an absence of small or medium-sized companies arriving in China since 2019, Eskelund said that the decline began long before the survey's collection period from February to early March.

Government Engagement Is Key, but Market Remains Closed for Some

The Li Qiang administration named 2023 an “Invest in     China Year,” but more than a quarter of respondents did not expect a meaningful opening of the Chinese market. While recognizing that business conditions fluctuate by industry, Eskelund stated that over 25% of the respondents do not expect a real opening.
The report by the EU Chamber of Commerce in China outlines the continued struggles faced by European businesses attempting to navigate China's regulatory environment. This is particularly troubling for new businesses seeking to establish a presence in China, as they may encounter hurdles that are both ambiguous and ever-changing.

While some regulations related to personal data protection and monopolistic practices may seem sound, the influence of security concerns on business opportunities in China remains unclear. Additionally, the overall economic environment in China is uncertain, with the nation experiencing general economic growth slowdowns and tension in trade relationships with the US.

Foreign investment in China has declined, with only 55% of respondents citing it as a future investment destination, the lowest rate since the survey began. Although the Li Qiang administration named 2023 as an "Invest in China Year," over 25% of respondents do not expect a real opening of the Chinese market.

New businesses entering the Chinese market will need to carefully consider these obstacles before establishing operations or investments in the country. It is essential to stay up-to-date on the latest regulations and market developments in order to mitigate risks and ensure long-term success. Additionally, businesses must be prepared to adapt and pivot in response to changing market conditions in China.

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