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European firms forced to ‘shrink, localize and silo’ in China

As China loses its attractiveness as an investment destination, European companies are being forced to “shrink, localize and silo” their operations in China, executives say, operating in the world’s second-largest economy said in a dark report on the situation.

Rating from European Union Chamber of Commerce in China Executives say it’s the most pessimistic since its founding in 2000, with President Xi Jinping’s regulatory crackdown on a previously booming industry and the implementation of stringent lockdowns and lockdowns to quell the Covid-19 epidemic. He cited the enforcement of travel restrictions.

“Ideology trumps the economy,” said Jörg Wuttke, president of the Chamber of Commerce. “Predictability has been challenged by frequent and erratic policy changes, especially with regard to Covid. [Zero-Covid] A real cost to the economy. ”

in what Wuttke described as the “darkest” of the chamber [position] paper ever”, the organization said “European companies involved [in China] It is no longer taken for granted. added China He said it was rapidly losing its “attractiveness as an investment destination” and that China and the EU were “moving further and further apart”.

The warning comes as the EU reassesss its economic and political ties with China.Brussels and Beijing are at an impasse Proposed Trade Agreement After China exchanged sanctions for mass detention of Uyghur Muslims in the Xinjiang Uighur Autonomous Region. EU representative Josep Borrell described the leaders’ annual summit in April as a “dialogue for the deaf.”

Brussels is A set of tools to retaliate Against trading partners that block market access for European companies. These measures are expected to apply to China as well.

“In the past, discussions focused primarily on investment opportunities. I’m guessing.”

President Xi Jinping’s zero-coronavirus policy makes it nearly impossible to visit China, suspends travel for headquarters-based executives, and exiles foreign staff frustrated with the situation in China. Became. No new EU companies have entered the Chinese market since the coronavirus pandemic began, according to the Chamber of Commerce.

Wuttke said he last left China in February 2020, but said he hopes to visit his native Germany at the end of the year. “It’s time,” he said. “I am my [older] German children at two and a half years.

Rapid changes in protocols for importing goods, including disinfection and, in some cases, parcel confiscation, have also disrupted corporate supply chains, and stringent lockdowns imposed across the country have dampened consumer demand.

“China is not the stable source of sourcing it used to be,” Utke said. “It was a rock. [but] Shanghai blockade [in April and May] It was a shock to our company and the global economy. ”

Beyond pandemic-related challenges, the chamber described a widening political gap as companies come under “increasing scrutiny” domestically for their practices in China.

The Uyghur Forced Labor Prevention Act passed this year in the United States and two EU regulations on forced labor and corporate due diligence “create compliance challenges for European companies doing business in China. This is because we are unable to conduct an independent third-party audit of the chain,” the chamber said.

Concerns about further disruption to the supply chain of the new coronavirus. Possibility of Chinese invasion of Taiwanled companies to diversify their suppliers and redirect their investments.

Businesses are evaluating “reshoring, nearshoring, or ‘friendshoring,'” the chamber said, referring to practices that bring production closer to consumers and allies.

Russia’s invasion of Ukraine and subsequent sanctions have made Chinese EU companies worried about their investments in the event of China’s invasion of Taiwan. A third of respondents to a European Parliament poll in April said the war in Ukraine had made China an unattractive investment destination.

https://www.ft.com/content/0df987c6-166d-4cd4-85f7-57a51bca6867 European firms forced to ‘shrink, localize and silo’ in China

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