For the cover of its latest position paper on doing business in the world’s second largest economy, the British Chamber of Commerce in China has deliberately chosen red this year.
While the color is auspicious in China, in the west it can indicate negativity and a barrier, such as on stop signs and traffic lights.
That ambiguity is meant to capture the situation in China today. While sentiment has improved since 2022, when Beijing’s zero-Covid policy crushed the economy, mixed messages and vague rules in critical areas such as data security keep foreign businesses on edge.
The latest shock came this week when China banned US chipmaker Micron’s critical information infrastructure products, following a weekend G7 meeting in Hiroshima in which the group accused Beijing of economic coercion and the militarization of the South Chinese Sea.
The Micron ban comes on top of raids in China on foreign consultants in recent weeks, which have included the detention and disappearance of five employees of US firm Mintz and a ban on auditor Deloitte.
Uncertainty is increasing although the Communist party started the year with a more positive message. At the “two-session” annual meeting of China’s parliament in March, the new premier, Li Qiang, was at pains to stress that the country was once again open for business.
Li said he has been talking to multinational companies, including American companies. “They all told me that they were optimistic about the future” of China, he said. He followed this up with speeches and roundtables at the country’s biggest business forums, in which he assured CEOs that the worst of zero-Covid is over.
But tensions with the US, which is one source of Beijing’s growing mistrust of foreign business, persisted. This was exacerbated by February’s spy balloon controversy.
Both sides accuse the other of obstructing efforts to restore communications. “We’re getting this very mixed message,” said Zou Zhibo, deputy director of the Institute for World Economy and Politics at CASS, a think tank closely linked to the Chinese government. He says efforts to repair relations during a November meeting between US President Joe Biden and Chinese leader Xi Jinping soured after the US imposed export controls on high technology. “There is no trust because we don’t know who to trust.”
For investors, the crackdown on consultants has had a chilling effect. The authorities’ targets have ranged from ordinary blue-chip firms like Bain and deep-dive due diligence firms like Mintz to expert companies that keep a Rolodex of specialists that investors can call when they’re investigating an acquisition or planning to buy goods from a supplier. obtain. .
The raids, for which there was little to no explanation other than allegations that the suspects were sharing information deemed relevant to national security, have alarmed foreign consultants operating in China.
One consultant at a European firm says that the government has always been keen to control information flows. But now it is classifying more and more data as sensitive under the “national security” label. He adds that the increasing emphasis on national security has increased the risks for consulting staff. “I am . . . prepared for everything if it gets really difficult business-wise,” he says. “What I always worry about is individual employees.”
For UK businesses, the problems include uncertainty caused by sudden regulatory changes, such as when the government cracked down on internet platforms in 2021 – and even the end of the zero-Covid policy itself, which caught businesses by surprise.
The British chamber said that while its members were less pessimistic – this year 76 per cent were more optimistic about business in China compared to a record 42 per cent who were pessimistic at the end of last year – 70 per cent said they were accepting a wait . -and-see approach.
All of this is contributing to poor performances in Chinese stocks and weighing on the country’s economic recovery. As one consultant at an American company puts it, everyone with clients in China today advises them on risk, ranging from the danger of conflict in the Taiwan Strait to how to keep their data compliant with Beijing’s changing requirements.
“Boardrooms are obsessed with this. They’re not quite sure how to draw the line: ‘Maybe I should keep a lighter footprint in China, or maybe keep less capital there, or be more agile,’” he says.
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