Beijing needs to provide greater regulatory certainty on data protection and other issues to help restore foreign investor confidence, the British Chamber of Commerce in China has warned.
A poll last month found sentiment among chamber members had recovered from the depths of last December, with 8 percent describing themselves as “pessimistic,” down from a record low of 42 percent.
Six months after China dropped harsh Covid-19 restrictions, 70 per cent of the chamber’s members were still taking a wait-and-see attitude on new investments, the trade group said, while it sought regulatory clarity.
“There is some nervousness; It’s not just in individual sectors but across the board,” said Julian McCormack, president of the chamber, which released its 2023 position paper on British business in China on Tuesday.
Jörg Wuttke, the outgoing president of the EU Chamber of Commerce in China, warned that foreign investors were wary and that uncertainty over data protection and changes to espionage laws were scaring businesses away.
China is seeking to encourage private businesses to start investing again in a bid to revive the world’s second-largest economy, which grew at its slowest pace in decades last year due to draconian Covid controls.
But foreign businesses have complained of mixed signals from Beijing, which in recent weeks has cracked down on the consultancy over allegations of national security issues influencing some of their operations.
Geopolitical and trade tensions between the US and its allies and China have worsened the outlook. China announced this week that it was blocking chips made by the US company Micron from use in critical information technology networks.
In its position paper, the British chamber provided a number of recommendations to improve the business environment, saying that navigating data security and IT regulations in China is one of the top challenges UK companies face in the country.
China has published requirements covering areas such as the amount of data that foreign enterprises can send overseas. But these laws lack clear definitions of what constitutes critical data, sensitive information and personal information, especially in industry-specific applications such as the car industry.
While the laws contained heavy penalties, compliance was difficult because of legal ambiguity, McCormack said.
The chamber also expressed concern that sudden policy changes are creating uncertainty. This also applies to more welcome regulatory reversals, such as the government’s decision to end its zero-Covid regime in December or the postponement of income tax reforms to 2021, which will increase costs for foreigners.
Analysts said China’s economic recovery was weaker than expected as exports slowed and consumers avoided “revenge spending”, with some expecting the lockdown to end.
“Waves of relief and ‘hurray’, it’s not there,” said McCormack of business sentiment after the zero-Covid lapse.
The Chinese government has set a target of 5 per cent growth in GDP this year, compared to 3 per cent last year.
The EU Chamber’s Wutke told a briefing on Monday that China would find it difficult to grow rapidly without painful reforms to reduce its mounting debt burden and address other structural challenges.
“China has plucked the low hanging fruit,” he said.
He did not believe China was at a “peak” as this would mean it could decline, but instead said it was “stable”, with only modest growth expected from here.
“It’s difficult this time because there is . . . very little room for maneuver,” Wutke said.