Get Informed, Stay Inspired

As the Chinese economy continues to struggle, British businesses remain on the sidelines.
Economy Europe

As the Chinese economy continues to struggle, British businesses remain on the sidelines.

Beijing had anticipated a quick resurgence of foreign investors following the easing of its strict COVID-19 measures at the end of last year, but this did not materialize in 2023.

A recent study of companies in Britain, published last week, is just one more piece of evidence to support this trend. VOA’s Mandarin Service also interviewed British entrepreneurs who are redirecting their investments to other countries as a result of uncertainty, international conflicts, and China’s policies.

Problem is Xi

David Smith, a British entrepreneur, resided in China from 2008 to 2020 where he collaborated with factories in Shenzhen, the country’s southern tech hub. He used to have a positive outlook on investing in China, but the government’s zero-COVID approach during the pandemic altered his perspective.

According to Smith, the strict measures implemented after the 2020 pandemic resulted in the closure of numerous factories in Shenzhen, where I was situated. This caused a shift from a period of growth to one of decline. As a result, I made the decision to depart from China and relocate my supply chain to countries in Southeast Asia, such as Vietnam.

Not only was it COVID, he stated, but also the path that Chinese President Xi Jinping is leading the nation towards.

“A lot of British businessmen who left China at the same time as me felt that China’s future would be ruined by Xi Jinping who only cares about power and not about the economy, so we are no longer enthusiastic about investing in China,” Smith said.

The recent survey conducted by the British Chamber of Commerce in China shows a decline in interest. Out of approximately 300 companies surveyed from October to November, 55% reported a plan to decrease or maintain their investments in China in the coming year. This is a slight improvement compared to the previous year, but it still marks the lowest level since the survey’s inception in 2018.

Expat community shrinks

According to the survey, British businesses in China reduced their investment activity in 2023 due to uncertainties in the economy and tensions in geopolitics.

According to the survey, 34% of participants reported feeling less accepted in China compared to a year ago. They attributed this to increasing local protectionism, inadequate policy support for foreign businesses, and unequal treatment compared to Chinese companies.

In recent years, there has been a steady increase in the number of British companies entering the Chinese market. However, a recent survey showed that only 1% of participants had successfully established themselves in China in the last year. This is a decrease of 2% from 2021 when COVID restrictions were implemented.

“In an interview with Bloomberg TV on December 11, Julian Fisher, chairman of the British Chamber of Commerce in China, expressed that businesses were uncertain about operations last year. However, there is now significant uncertainty surrounding revenue.”

According to Fisher, the estimated number of British citizens living in China has decreased from 35,000 to 16,000 due to the pandemic. Additionally, several companies have replaced foreign managers with local staff.

Currently in a state of anticipation, but not yet finished.

According to Peter Humphrey, a former journalist who spent over ten years as a fraud investigator for Western companies in China, the primary cause for the halt is the decline in the Chinese economy in recent years.

He stated that the British Chamber of Commerce in China has long been supportive of Beijing and business interests. It should be noted that a significant portion of businesses in the U.K. prioritize profit over ethical considerations.

According to Humphrey, who is currently a researcher at Harvard University’s Fairbank Center for Chinese Studies, the data in the survey “indicate a combination of positive and negative indicators.”

“According to him, the current economic circumstances make it unwise to pursue new investments in China, and the country’s appeal has significantly diminished. However, British enterprises have yet to fully recognize that conducting business with China under its current leadership is not a favorable choice.”

Based on the study, the primary reason for foreign businesses feeling unwelcome in the market is the growing preference for local protectionism and self-reliance, as well as the lack of government support. Other factors include the unequal treatment compared to Chinese companies and a lack of communication channels with the Chinese government.

The study also indicates that the intricacies of cybersecurity and IT rules create additional unpredictability for British businesses conducting operations in China.

On July 1, the Chinese government enacted an updated counterespionage law in order to enhance national security. The revised law now includes a broader definition of espionage, encompassing any information or materials pertaining to the country’s security interests.

As stated by the U.S. National Counterintelligence and Security Center, this encompasses all “documents, data, materials, or items that may pose a threat to PRC national security,” resulting in possible “legal complications and uncertainty for foreign corporations, reporters, educators, and scholars.”

Despite ongoing challenges, there are indications that optimism is gradually increasing. Out of the companies that were surveyed, approximately 46% have a positive outlook for 2024. This could indicate a shift if the economic and geopolitical conditions improve. However, the majority of investment firms in the U.K. plan to monitor the situation before making any changes to their investment levels.

Adrianna Zhang was involved in the creation of this report.