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Home»Finance»European Business Confronts China Head On
Finance

European Business Confronts China Head On

December 2, 2024No Comments8 Mins Read
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European Business Confronts China Head On
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European companies are becoming bolder and more vocal about their declining confidence in the rewards of continuing to do business in China.

European enterprises, through the 1,700-plus members of the European Union Chamber of Commerce in China (EUCCC), are not confining their comments on the subject to venues and media outside of China. Instead, they are participating in surveys, holding conferences, publishing reports, and issuing press releases from within China itself – aware of but not much deterred by a decades-old moratorium on free speech, the intensity of which is now more severe than at any time since late the 1980s.

The current viability and feasibility of continuing business operations in China will be put under the microscope this week in Shanghai. The EUCCC will host a conference entitled “2025 China Outlook Conference: A Strategic Rethink of Doing Business in China.” The conference and the content are available to all, members and non-members alike, while space permits.

It is common for foreigners living and working in China (whose numbers are dwindling) to self-censor and avoid offending the host country while living off of its largesse. The Europeans are pulling no punches here, however. Strong signals are being sent to the Chinese government that Europe is engaged in a strategic “rethink” of keeping its businesses going in China. 

The Chamber’s invitation to attend the China Outlook Conference, available to the public domestically and internationally, goes directly to the point:

As the challenges of doing business mount and the rewards diminish, many foreign-invested enterprises have concluded that their China operations require a strategic reassessment. After over a decade of limited action to implement promised reforms by the Chinese government, European business confidence has reached an all-time low on many measures, and expectations of meaningful change have been significantly reduced.

The challenges facing international businesses in the Chinese market are proliferating and intensifying, including China’s economic slowdown, the highly politicized business environment, perennial market access and regulatory barriers, overcapacity and sluggish domestic consumption. Companies have begun adjusting their expectations for and approaches to the Chinese market. Some have started shifting investments planned for China to alternative markets. There is an increasing trend towards both on- and off-shoring and/or localising supply chains, which represents a strategic shift towards siloing China operations from the rest of the world.

Strong stuff in an environment in which the Chinese government would normally expect to be treated deferentially. To say that the EUCCC’s conference invitation flies in the face of giving China that deference is an understatement.

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Warning Signs in May

The December 3 conference was preceded by the EUCCC’s annual survey results, which were published back in May. That survey of the organization’s membership found that “despite the re-opening of China’s borders in early 2023, business confidence in the market continued on a downward trend.” 

There had been high expectations that the post-COVID period of opening back up would usher in greater economic growth and stability for EU companies in China. Instead, the survey found that conditions had worsened. From declining demand to increased difficulties accessing markets and satisfying regulators, European companies reported a worsening situation.

Indeed, although 45 percent of EU companies said that the market for their goods and services had increased, a 9 point improvement from the previous year, over two-thirds – 68 percent – of those same respondents said that business had become “more difficult.” That’s the “highest percentage on record,” the EUCCC said.

Perhaps the starkest indicator that all is not well with European business in China is that for the first time, and by a large margin, EU companies said that one of their Top 3 business challenges is China’s economic slowdown. That percentage went from 36 percent of companies surveyed last year to 55 percent this year, a 19 point increase.

EU Countries vs EU Companies: France and Germany

European companies may find themselves caught between the competing interests of the viability of doing business in China and the political and diplomatic interests of their home countries. Ironically, the EUCCC is more bold in addressing the Chinese government with difficult issues than many of the elected presidents and prime ministers of Europe. Contrast the French approach to China since President Emmanuel Macron took office with the direct and unflattering statistics and comments laid out in the EUCCC survey findings this year.

Since coming to power in 2017, Macron has ostensibly sought to improve France’s relationship with China, while asserting France’s values. Unfortunately, it appears that his tactics for doing so rest primarily on backing away from any discussions of human rights. The concepts and practice of liberty – along with equality and fraternity, the rallying cry of the French for well over two centuries now – have ceased to inform Macron’s discussions with Chinese leader Xi Jinping. Initially, Macron attempted to chide China – and suggested that others do so, as well – on its human rights abuses. That approach, as others have learned before him, did him or French interests no good.

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To illustrate, in his speech during Ambassadors’ Week 2017, Macron said, 

Our diplomatic and economic exchanges with Russia, Turkey, and China cannot justify bashful avoidance of human rights issues, because to do so would be to betray ourselves. We must respect those on the other side of the table, their own history, their own development, without avoiding such dialogue.

However, by 2018, Macron had changed his approach – which is to say, he ceased approaching the subject at all. As Human Rights Watch reported, “by January, Macron’s resolve appeared to weaken, as he failed to publicly raise a single specific human rights case or issue on his first visit to China as president.”

Fast forward to 2024, and it seems that Macron, despite the obvious discontent of many of France’s companies doing business in China, still hasn’t raised the thorny issues that impact his nation’s investments in China, and that damage France’s reputation by their very avoidance. On November 19, Macron and Xi met on the sidelines of the G-20 Summit in Rio de Janeiro. After reiterating the usual platitudes of mutual respect and cooperation, the Chinese Foreign Ministry readout of the meeting said:

The two sides had an exchange of views on the Ukraine crisis. Xi Jinping pointed out that China’s position on the Ukraine crisis is consistent. China hopes for a de-escalation of the conflict, doesn’t want to see the spillover of the crisis or the escalation of the war, and will continue to play a constructive role in its own way to promote a ceasefire and an end to the war.

Other reports of the meeting elaborate further, and state that Macron told Xi that there is “convergence” on their views on the conflict. “You share like us the same concern following Russia’s bellicose and escalatory declarations on nuclear doctrine,” Macron was quoted as saying. No mention was made of Xi’s reply, if there was one.

Germany, however, is taking a different approach. For many years, going back to the late 1980s and 1990s, of all European countries, Germany was consistently the most assertive in both attitude and performance in its relationship with China. German industrial behemoths such as Volkswagen, Siemens, and BASF invested billions into developing their capabilities and markets in China. Indeed, former Chancellor Helmut Kohl effectively tethered Germany’s economic growth to its access and performance in the Chinese economy. 

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If any country – in the European Union or not – could be reliably counted upon to buck the current trend of pessimism about the future and feasibility of the Chinese market, it is Germany. Germany has long been bullish on China, at times when other countries have not been. One third-tier city, Taicang in Jiangsu Province, earlier this year celebrated the 500th German company to put down roots in its municipality.

Now, however, even Germany’s enthusiasm for China has considerably dampened. Led by Chancellor Olaf Scholz, Germany produced a plan for its ongoing relationship with China, published in 2023. The strategy paper clearly and comprehensively lays out the issues that frame the China-Germany relationship. From the Introduction on forward, Germany raises the talking points and principles that the German government must to incorporate into its complex and ongoing relationships with China. 

The third paragraph of the 44-page paper goes straight to the point: “Growing prosperity and achievements in fighting poverty in China contrast with setbacks concerning civil and political rights. Unwelcome opinions are censored, critics are persecuted, access to free internet and many international media outlets is blocked, and there is no freedom of reporting.”

Current and concrete trade and business issues are succinctly addressed. “China’s economic strategy aims to make it less dependent on other countries, while making international production chains more dependent on China,” the Introduction said. These are the same headwinds that EUCCC members have long noticed impacting their businesses.

Conclusion

The EUCCC survey results earlier this year showed that over 50 percent of its respondents are planning to cut costs, and over 25 percent of those are planning to do so by workforce reductions. “The strategies companies are employing to adapt to the business environment have the potential to set China into a negative cycle that would add to the country’s economic woes,” the Chamber wrote. 

It remains to be seen if speakers and attendees at the China Outlook Conference on December 3 will be as forthright in their spoken remarks this week as they have been in writing. If they are, they will offer a worthy example for political leaders in Europe. If not, China will win again, at least in the short term.

Business China confronts European
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