Exclusive | China’s economic ‘crisis of confidence’ has shattered faith of foreign investors, warns European business head in call to action
- President of EU Chamber of Commerce in China discusses a potential cure to the malaise, but will it be a tough pill for Beijing to swallow?
- ‘From an FDI perspective, China is experiencing a perfect storm in which there are many factors now conspiring’ to suppress investor sentiment, Jens Eskelund says
Facing a “perfect storm” that has battered foreign investors’ confidence in the world’s second-largest economy, Beijing can still weather the downturn if it takes decisive action, according to the new head of the European business association in China.
To restore that lost confidence, the Chinese government must foster much greater certainty in its business environment, said Jens Eskelund, who was elected on May 24 as president of the European Union Chamber of Commerce.
And he said that steps toward that goal should include increasing information transparency and data reliability, as well as reducing policy ambiguity and removing unfair market restrictions to foreign business.
Short of such strong, concrete actions, Eskelund warned that while EU businesses are still interested in China’s huge market, they would remain reluctant to bet on its sputtering economy, which has become a matter of global concern.
“What we see now in the economy is a crisis of confidence,” Eskelund said, adding that “insecurity about what the future would hold” has weakened business sentiment while weighing on the outlook for foreign-direct-investment (FDI) inflows in geopolitically onerous times.
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Further igniting concerns over data transparency and economic ramifications, the National Bureau of Statistics this week suspended the release of the youth-unemployment rate after it rose to record highs in recent months.
Eskelund said the central government should respond by rebuilding that shattered faith with concrete moves to improve policy transparency and access to information – issues of increasingly paramount importance among foreign investors as they try to gauge and operate in the Chinese market.
“From an FDI perspective, China is experiencing a perfect storm in which there are many factors now conspiring,” Eskelund said, pointing to supply-chain upheavals, manufacturing relocations, geopolitical tensions, weakened economic growth both domestic and abroad, and a rise in Europeans’ negative sentiment toward China – all of which “affect investor sentiment”.
Instead of a big-bang monetary stimulus, Beijing has unfolded action plans targeting the private sector, foreign businesses and consumption, which are considered crucial areas for driving economic growth and creating jobs.
“The Chinese government should create certainty about the investment environment and its relations with Europe, and re-establish the faith in predictability and efficiency of the Chinese market,” Eskelund said. “It can start by addressing policy ambiguity and limited market access, and by translating the [new] directives into concrete action in the coming months, which would move the needle for European companies and contribute to a change of heart in the business community.”
In the past few years, overseas confidence in China’s growth prospects has been battered by its rigid implementation of a zero-Covid policy, and by rising pressure from Western countries to reshore or “friend-shore” their supply chains.
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“There is a bit of confusion as to what the focus is, as some of these priorities do not go hand in hand,” Eskelund said. “We understand that there is a need to protect national security, but we are concerned that the messages are not particularly welcoming for foreign companies.”
“We want to invest in China and develop our business here,” he added. “But we need to have a line of sight that allows us to feel reasonably assured about how we will develop in the future.
“We hope to see clear definitions about state secrets and critical information infrastructure, and the consistent interpretation [and implementation] among different levels of governments.”
“Are companies allowed to study wind patterns off the coast of Fujian if they are investing in offshore wind? If a company is establishing a new factory and taking soil samples to screen for toxins, would that qualify as a state secret? There is insecurity about what would constitute a state secret and the accuracy of the information that companies can gather,” he said, adding that freer access to information would enable companies to perform audits and due diligence on behalf of investors.
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But Eskelund said that China needs to move quickly in putting these vows into practice if it wants to stem the tide of expats who are leaving and to convince new talent to come.