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South China Morning Post: Chinese firms in EU worried by decoupling calls

South China Morning Post| Updated: Oct 2, 2022

(Luna Sun) Chinese enterprises operating in the European Union have expressed concern about growing calls for decoupling and the threat of trade protectionism, with a new report indicating business sentiment has dropped to a three-year low.

A complicated political environment, the fast roll-out of unilateral economic and trade instruments and the impact of negative public opinion are the main factors dragging down sentiment, according to the report by the China Chamber of Commerce to the EU and global consultancy Roland Berger.

The report, which was released on Friday and surveyed about 150 Chinese enterprises in the EU this summer, found 53 per cent of respondents believed the business environment had deteriorated in the 12-month period covering the second half of 2021 and the first half of this year – the third consecutive year sentiment had dropped.

It also said the deteriorating macro economy had created a less favourable business environment, while 38 per cent of respondents found a hostile political environment had hit their business operations.

In total, 80 per cent of the surveyed enterprises said geopolitical dynamics, the Covid-19 pandemic and supply chain disruptions were taking an increasing toll on both the global economy and the enterprises operating in the EU.

"The wall put up around the hi-tech and telecoms sectors in Europe is making matters difficult for Chinese enterprises operating in the EU," the report said.

Companies expressed concerns about the EU's "unilateral economic and trade policy instruments", including a 5G cybersecurity toolbox and screening of foreign direct investments, as well as the bloc's efforts to mitigate foreign interference in research and innovation.

They said they worried this "might cause a 'decoupling' of the two economies in the hi-tech sector and the fragmentation of international technological standards".

"Some in the EU are saying the bloc should cooperate with so-called like-minded countries," the report said. "Rhetoric like this will only exacerbate the risk of 'breaking' the supply chains and value chains. Chinese enterprises in the EU hope the 'decoupling risk' does not materialise for it would lead to higher costs and lower efficiency."

Brussels has increased its scrutiny of foreign investments and hopes to reduce its reliance on China in certain crucial and strategically important sectors, including the hi-tech and digital sectors.

In the meantime, EU policymakers are under pressure from the market and consumers to follow suit with the United States to push for legislation that demonstrates that multinational firms' China operations are fully transparent, with a supply chain free of forced labour.

Beijing's worsening relations with the US and other Western countries, including Britain, Canada and Australia, also threaten to hit companies operating within the EU.

Despite this, the estimated aggregate revenues of Chinese companies in the bloc stood at US$160 billion last year, up by 8.4 per cent from the previous year.

Some 41 per cent of the enterprises surveyed also expected higher revenues this year.

Meanwhile, 70 per cent of the businesses believed EU-China economic ties would keep improving and the bloc would remain an attractive destination for Chinese investors.