The British Chamber of Commerce in China has warned that Beijing needs to provide greater regulatory certainty on data security and other issues to help restore the confidence of foreign investors.
A survey last month found sentiment among chamber members had recovered from a December trough, with 8 percent calling themselves “pessimistic,” down from a record 42 percent.
But six months after China abandoned tough Covid-19 restrictions, 70% of chamber members are still taking a wait-and-see approach to new investment as they seek regulatory clarity, the business group said.
“There is some tension; it’s not just in individual sectors, but across the industry,” said Julian MacCormac, chairman of the chamber of commerce, which released its 2023 position paper on British companies in China on Tuesday.
Jörg Wuttke, the outgoing head of the European Union Chamber of Commerce in China, has warned that foreign investors are wary of data security, uncertainty and changes in anti-espionage laws are plaguing businesses.
China is seeking to encourage private companies to restart investment in a bid to fuel the recovery of the world’s second-largest economy, which grew at its slowest pace in decades last year due to strict Covid controls.
But foreign companies complain that Beijing is sending mixed signals. Beijing has cracked down on consulting firms in recent weeks after accusing them of national security concerns as part of their work.
Geopolitical and trade tensions between the United States and its allies and China have soured the outlook. China announced this week that it would block chips made by the U.S. company Micron from being used in critical information technology networks.
In its position paper, the British Chamber of Commerce put forward a series of proposals to improve the business environment, saying that dealing with China’s data security and IT regulations is the biggest challenge facing British companies in China.
China has issued requirements covering areas such as the amount of data foreign companies can send overseas. But these laws lack clear definitions of what constitutes important data, sensitive information, and personal information, especially in industry-specific applications such as the automotive industry.
MacCormac said that while the law provides for severe penalties, compliance is difficult because the law is vague.
The chamber is also concerned about the uncertainty created by sudden policy changes. This applies even to more popular regulatory reversals, such as the government’s decision to end its zero-Covid regime in December or delay the 2021 income tax reform, which will increase costs for foreigners.
China’s economic recovery was weaker than expected, analysts said, as exports slowed and consumers refrained from the “retaliatory spending” some expected after the lockdown ended.
“That wave of relief and ‘cheers’, it’s kind of gone,” MacCormac said of the post-zero Covid business sentiment.
The Chinese government is targeting a 5% increase in gross domestic product this year, compared with 3% last year.
Wuttke of the European Chamber of Commerce told a briefing on Monday that China would struggle to achieve rapid growth without painful reforms to reduce its growing debt load and address other structural challenges.
“China has picked the low hanging fruit,” he said.
He doesn’t think China has “peaked” as that would mean it could decline, but instead says it has “plateaued” and only moderate growth is expected from here.
“It’s hard this time because there’s wiggle room. . . much less,” Wuttke said.