Beijing needs to provide greater regulatory certainty on data security and other issues to help restore foreign investor confidence, the British Chamber of Commerce in China has warned.
A survey last month found sentiment among the chamber’s members had recovered from the depths of last December, with 8 per cent describing themselves as “pessimistic”, down from a record 42 per cent.
But six months after China abandoned draconian Covid-19 restrictions, 70 per cent of the chamber’s members were still adopting a wait-and-see attitude on new investments while they sought regulatory clarity, the business group said.
“There is some nervousness; it’s not just in individual sectors but across the board,” said Julian MacCormac, chair of the chamber, which on Tuesday released its 2023 position paper on British business in China.
The outgoing president of the EU Chamber of Commerce in China, Jörg Wuttke, warned that foreign investors were cautious and uncertainty over data security and changes to espionage laws were dogging businesses.
China is seeking to encourage private businesses to begin investing again to stoke a recovery in the world’s second-largest economy, which grew at its slowest pace in decades last year because of rigid Covid controls.
But foreign businesses have complained of mixed signals from Beijing, which has cracked down on consultancies in recent weeks over allegations some of their work touched on issues of national security.
Geopolitical and trade tensions between the US and its allies and China have worsened the outlook. China this week announced it was blocking chips made by US company Micron from use in important information technology networks.
In its position paper, the British chamber provided a range of recommendations for improving the business environment, saying navigating data security and IT regulations in China ranked among the top challenges facing UK companies in the country.
China has published requirements covering areas such as the quantity of data that foreign enterprises can send overseas. But these laws lack clear definitions on what constitutes important data, sensitive information and personal information, particularly in industry-specific applications such as for the car industry.
While the laws carried heavy punishments, compliance was difficult because of the legal ambiguity, said MacCormac.
The chamber also worried that sudden policy changes were generating uncertainty. This even applied to more welcome regulatory reversals, such as the government’s decision to end its zero-Covid regime in December or to postpone income tax reforms in 2021 that would have increased costs for foreigners.
Analysts said China’s economic recovery was weaker than expected as exports slowed and consumers refrained from the “revenge spending” some had expected once the lockdowns ended.
“That wave of relief and ‘hurrah’, it’s kind of not there,” said MacCormac of business sentiment after the end of zero-Covid.
China’s government is targeting 5 per cent growth in gross domestic product this year compared with 3 per cent last year.
The EU chamber’s Wuttke told a briefing on Monday that China would find it difficult to generate rapid growth without painful reforms to reduce its growing debt burden and address other structural challenges.
“China has plucked the low-hanging fruits,” he said.
He did not believe China had “peaked” because this would imply it might decline but instead said it had “plateaued”, with only mild growth expected from here.
“It’s difficult this time because the wriggle room for manoeuvre . . . is much less,” Wuttke said.