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British Businesses Wait on Sidelines as China's Economy Struggles


FILE - A man walks past Mini cars decorated with the British flag, outside a showroom in Beijing, China, June 27, 2016.
FILE - A man walks past Mini cars decorated with the British flag, outside a showroom in Beijing, China, June 27, 2016.

Beijing’s hopes for a swift return of foreign investors after it began lifting its harsh COVID-19 restrictions late last year were not answered in 2023.

A new survey of British businesses released last week is but the latest to confirm that trend. VOA’s Mandarin Service also spoke with British businesspeople who are shifting their investments elsewhere due to uncertainty, global tensions and China’s policies.

Problem is Xi

One of those people is David Smith, a British businessman who lived in China from 2008 to 2020 and worked with local factories in China’s southern tech hub of Shenzhen. He says he used to be optimistic about investing in China, but Beijing’s zero-COVID policy during the pandemic changed that.

"The draconian clearing policy after the 2020 outbreak led to the shutdown of many factories in Shenzhen, where I was located, and what was once a boom turned into a bust," Smith told VOA. “I decided to leave China and also move my supply chain to Southeast Asian countries like Vietnam.”

It wasn’t just COVID, he added; it was also the direction that Chinese President Xi Jinping is taking the country.

"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.

Last week’s survey by the British Chamber of Commerce in China reflects the waning enthusiasm. According to the survey of about 300 companies surveyed between October and November, 55% said they planned to reduce or maintain investment levels in China over the next year, a slight improvement over the previous year but still worse than any other year since the survey began in 2018.

Expat community shrinks

The survey said British companies operating in China significantly slowed their investment decisions in 2023 due to economic uncertainty and geopolitical tensions.

Thirty-four percent of respondents said they now feel less welcome in China than a year ago, citing rising local protectionism, a lack of policy support for foreign companies and a general lack of equal treatment with Chinese companies.

Over the past few decades, new British companies have continued to enter the Chinese market. However, according to the survey, only 1% of respondents had established a presence in China over the past 12 months, down by 2% from 2021, when COVID restrictions were in place.

"For businesses, last year there was uncertainty around operations. Now there's real uncertainty around revenue," said Julian Fisher, chairman of the British Chamber of Commerce in China, in an interview with Bloomberg TV on December 11.

While there are no official figures, Fisher said he has heard that the number of British expats in China has dropped to 16,000 from 35,000 before the pandemic, and that many companies have replaced foreign managers at all levels with domestic employees.

Waiting but not out

Peter Humphrey, a former journalist who later worked for more than a decade as a fraud investigator for Western firms in China, told VOA that he thinks the main reason for the pause is the downturn in the Chinese economy over the past two years.

"The British Chamber of Commerce in China has been very pro-Beijing and pro-business for many years, as I recall, and you have to remember that there is a large proportion of businesses in the U.K. that do not want business to be influenced by moral values," he said.

The figures in the survey "represent a mixed signal," added Humphrey, who is currently an external researcher at Harvard University's Fairbank Center for Chinese Studies.

"Economic factors make it inadvisable to make new investments in China right now, and the country is much less attractive than it used to be,” he said. “But British businesses haven't really realized that it's not a good idea to do business with China under its leaders."

According to the survey, an increasing trend toward local protectionism and self-sufficiency and a lack of policy support for foreign businesses was the biggest factor contributing to foreign businesses feeling less welcome or unwelcome in the market. The next factors were unequal treatment with Chinese companies followed by a lack of channels for communication with the Chinese government.

The survey also shows that the complexity of cybersecurity and IT regulations adds another layer of uncertainty for U.K. companies operating in China.

The Chinese government implemented a newly revised counterespionage law on July 1 in the name of strengthening national security. The new version of the law expands the definition of espionage to include any documents, data and materials related to national security interests.

According to the U.S. National Counterintelligence and Security Center, this means any “documents, data, materials, or items could be considered relevant to PRC national security due,” which creates potential “legal risks and uncertainty for foreign companies, journalists, academics, and researchers.”

Although difficulties remain, there is evidence that optimism is slowly emerging. Of the businesses surveyed, about 46% expressed an optimistic outlook for 2024, which could signal a change if the economic and geopolitical climate improves. However, most U.K. investment businesses intend to wait and see how the situation develops before raising or lowering investment levels.

Adrianna Zhang contributed to this report.

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