British firms in China wary to invest over slowdown: survey

BRITISH companies in China are holding off investment decisions because of a gloomy economic outlook and geopolitical uncertainty, according to a recent survey.

This pessimism was captured in the first annual survey by the British Chamber of Commerce in China after the country emerged from strict pandemic controls, underscoring the persistent headwinds facing the Chinese economy beyond temporary disruptions caused by Covid-19 curbs.

“Companies in China are effectively treading water, with many delaying key decisions around investment and market entry,” the chamber said in a report about its annual survey, released Tuesday.

Of the about 300 companies surveyed in October and November, 55 per cent said they would cut or maintain the same level of investment in their Chinese operations over the next year. That was a modest improvement from last year, when pessimism rose to a record, but still worse than all previous years since the survey began in 2018.

An overwhelming majority of those who planned to decrease investment cited domestic economic uncertainty, followed by geopolitical uncertainty. Specifically, respondents feared China’s tensions with other countries would affect their trade policies toward the world’s largest exporter and decrease demand for goods and services from the nation.

The survey results would give Chinese President Xi Jinping all the more reason to implement the “heart-warming” steps he promised to attract foreign capital during a summit in San Francisco last month.

China has since taken a flurry of small steps to improve the business environment, including providing visa-free access to China for six countries.

Those moves came after a measure of China’s foreign direct investment turned negative for the first time in 25 years, highlighting how foreign companies are pulling money out of the country due to geopolitical tensions and higher interest rates elsewhere.

Still, the sentiment expressed in the 2023 survey was better than in 2022, when British companies’ pessimism peaked amid the country’s zealous enforcement of its Covid-zero policy.

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Fewer than a third of the respondents held a gloomy outlook for their sector in 2023, compared with a record high of 42 per cent last year. About 46 per cent reported an optimistic business outlook for next year, compared with 31 per cent in 2022.

About 60 per cent of companies surveyed this year said they found it more difficult to do business compared to a year earlier, an improvement from the 89 per cent who reported so last year.

The findings added to surveys earlier this year by the American Chamber of Commerce in Shanghai and the European Union Chamber of Commerce, which found Western firms historically glum about the business outlook in China. Geopolitical strains, data security rules and concern about Chinese actions targeting overseas firms have all rattled companies.

The domestic economy has been struggling after an early rebound from ending pandemic curbs faded.

An ongoing property market slump and flagging consumer sentiment have dragged on growth, while structural challenges including an aging population and low business confidence remain longer-term concerns. BLOOMBERG