Increasing risk for companies when investing in China

Economy Increasing risk for companies when investing in China

12.09.2024 Source: dpa 2 min reading time

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China’s exports are rising again. At the same time, the country is becoming increasingly unattractive for European players.

In its new position paper, the EU Chamber of Commerce points out the difficulties in the Chinese market.

(Image: Arjan – stock.adobe.com)

There is a glimmer of hope for China’s economic recovery. Exports from the second-largest economy grew more than expected in August. According to data from the Beijing Customs Authority, exports rose by 8.7 percent year-on-year to the equivalent of 309 billion dollars (about 280 billion euros). This means that Chinese exports have increased for the fifth month in a row. Imports increased by 0.5 percent. Analysts had previously expected exports to increase by 6.6 percent, while they expected imports to rise by 2.5 percent. The Customs Authority’s data show that exports have increased to almost all markets. And this with significant increases in deliveries to the EU, India and Brazil. Exports to the USA rose by around five percent (the highest level since September 2022), while deliveries to Russia also increased.

China is putting a strain on other countries’ economies

There were particularly large deviations in trade with Germany in August, it continues. While China’s exports rose by 21.3 percent, Chinese imports from Germany collapsed by 17 percent. Since the beginning of the year, China’s exports to us have increased by three percent year-on-year, while imports have fallen by 12.4 percent. Product prices have been falling for almost two years. While China is worried about deflation, other countries are not enthusiastic about the flood of cheap exports. The EU and the USA recently imposed high tariffs on electric cars made in China. Beijing has also been planning to restructure the economy for some time. In order to create new growth drivers, for example, the expansion of high-tech sectors (renewable energies and electromobility) is being supported by the state. However, the new sectors are struggling with their overcapacity.

China’s market is becoming increasingly unattractive for European companies due to the lack of reforms and increasing problems, experts note. For some companies, the risks of investing in China are already beginning to outweigh the returns, according to the annual position paper of the EU Chamber of Commerce in Beijing. This trend will intensify if the main concerns of companies are not addressed. Concrete action is therefore needed to turn the tide, demanded the interest group, which has over 1,700 members. The predictability, reliability and efficiency that have made the Chinese market so attractive for foreign companies are therefore steadily decreasing. In addition, the business environment is also becoming more politicized, the paper reads. What is new, according to Chamber President Jens Eskelund, is that the economic situation in China itself is continuing to deteriorate.

This is what companies think about China as a business location

It is becoming increasingly doubtful that you can make money in China, explained Eskelund. However, the Chamber does not see any withdrawal of European companies. Many companies actually need to be in China to remain competitive. However, some are already looking into the possibility of partially shifting production to other locations. Others are simply waiting to see how China develops before investing in new business in the People’s Republic.

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