“This is especially the case as, while European companies’ China operations might still see opportunities to expand their presence in China, they find it increasingly difficult to convince their headquarters,” said the report, which was released on Friday and cited responses from 529 members companies in January and February.

Ker Gibbs, former president of the American Chamber of Commerce in Shanghai, pointed to fewer expatriate employees in key positions of China operations, noting how this has hindered communication with headquarters and resulted in a fuzzier picture of what is actually happening in the country.

“Information and investment go together. You’re not going to find a lot of investors who are willing to deploy capital without confidence in the information they are working with,” said Gibbs, who is now an executive-in-residence at the University of San Francisco’s China Business Studies Initiative.

“China’s decoupling from the West seems to be accelerating, with policies from Beijing and Washington pushing in that direction. This is not what the business community wants, but people are reacting to policies and the overall climate,” he explained. “The restrictions on foreign business journalists also haven’t helped. We’re getting fewer stories out of China, and [these are] often reported by people from Seoul or Singapore, not from inside China. The restrictions on economic data haven’t helped, either.”

Gabor Holch, an intercultural leadership consultant and author of Dragon Suit: The Golden Age of Expatriate Executives In China, has been vocal about the risks of excessive “localisation” – replacing foreigners with local managers. His book, published in August, was based on interviews with business executives over five years.

Reached by the Post, he stressed the need for corporate decision-makers to carefully “rely on data that both reflects China’s actual situation and places it in a wider regional or global context”.

But doing so, he said, has become increasingly difficult over the past several years as information flows have been heavily curtailed and stonewalled, and “working with China’s shielded digital ecosystem takes a surprising amount of manual data transfer”.

“The last decade widened the gap for many reasons,” he explained. “Scrutiny increased on published content in China, and international researchers lost access to local sources. Local managers replaced expatriate leaders, but they have limited access and sceptical attitudes to internationally published data.

“Headquarters rely on global news sources and research whose authors often lost their access to China for political reasons, and consequently tend to overestimate risks. Executives in China are exposed to sources curated by local media and therefore mostly see opportunities.”

All the while, Holch noted, executives on both sides “must work hard to overcome both unrealistic fears about China and politically motivated information from China itself”.

Apart from the perceived challenges of accessing and relaying quality information, Zak Dychtwald, founder and CEO of Shanghai-based consulting firm Young China Group, said companies must revisit their approach to China as their boards have become “more skittish than ever”, and as localisation strategies adopted in China operations could have unforeseen implications.

“The ability to have a local team used to be key for success in China,” Dychtwald said. “As we’ve seen the number of foreigners go down, for the first time in a long time, I’m realising the value of having expats on teams, which is to be a bridge for trust, to communicate in a way that headquarters can understand and receive.

“There is higher value in having expats now versus three years ago – for understanding the strategy, being here on the ground, being a part of the execution, and then being responsible for the communication.”

In the months following China’s border reopening in early 2023, leaders unveiled measures to attract foreign investment while also loosening visa policies, but foreign firms have nonetheless flagged challenges in recruiting foreigners for China operations.

Amid the broader de-risking shift away from China and in the face of a growing divergence in national security regulations between China and its Western partners, more foreign companies have separated their China operations from the rest of their global business.

02:27

China expands visa-free travel to 6 new countries

China expands visa-free travel to 6 new countries

And in that respect, a drop in the number of Europeans employed by their China operations has been a key factor behind the decoupling trend, the EU chamber warned, adding that this has contributed to a loss of mutual understanding and trust.

As a result, 26 per cent of companies polled in the chamber’s latest survey said they were having to adapt or modify products or services, while another quarter said they needed to develop alternative supply chains for China and Europe or third markets.

The need for Beijing to make meaningful progress in restoring foreign confidence “is becoming increasingly urgent”, the chamber report said.

Denis Depoux, global managing director at consultancy Roland Berger, said new problems have emerged even with more CEOs visiting China.

“At many Western firms’ China offices, there are less experienced people, especially expats, and few rotations, and what I say is less ‘intimacy’ with headquarters when there could be new faces but [these are] mostly junior people who have not been to HQs or other overseas branches,” he said.

“American firms, in particular, have not been replenishing expats in China in recent years as fast as European companies.”