Washington has shown increasing levels of hostility toward Beijing. Leadership in European Union (EU) has adopted Washington’s tone, if a bit less strident. In the United States talk increasingly includes the phrase “de-couple from China.” The Europeans prefer the word “de-risk,” but it comes to the same thing. Independently and for their own purposes, American and European businesses are moving in the same direction as their governments, less in deference to the authorities and more because of what is happening in China. This certainly is the message coming out of three important business groups: the U.S.-China Business Council, the U.S. Chamber of Commerce in Shanghai, and the European Union Chamber of Commerce in China.
All three business groups report a radical and negative change in sentiment among their members toward doing business in China. The Council recently polled its 117 member companies throughout China. Some 28 percent of respondents expressed outright pessimism about future business prospects in China. That figure is up markedly from the 21 percent who expressed such feelings in last year’s poll, a record at the time. Perhaps even more significant is the fact that less than half the poll’s respondence were able to express any optimism at all. Some 83 percent in the survey reported a decline in their sentiment toward China, and some 43 percent said that China’s business environment had deteriorated over the last twelve months.
The American Chamber polled its 325 members and got similar results. Only half its members had anything optimistic to say about China’s business environment in the coming five years. This is the lowest percentage ever recorded in the survey’s 24-year history. As of 2021, as many as 78 percent of the members held positively optimistic views. The larger European Union Chamber, with 1,700 members, has not done a formal survey of late, but its president, Jens Eskelund, reported that his membership had also soured, adding that the number of Europeans in China today is lower than at any time in the last three decades.
All the respondents – American and European – gave the same reasons for the growing pessimism and ebbing optimism. Part, they said, grew out of the hostile attitude toward Beijing growing in western capitals, in particular President Joe Biden’s moves to limit technology exports to China and to restrict American investments in Chinese technology. More than this, they noted the changing Chinese policy environment. Many members noted Beijing’s restrictions on exports of rare earth elements and other materials essential to the production of batteries and electric vehicles. Top of the list, however, were China’s new espionage laws and rules governing data collection and cross-border transfers of information.
On this last point, both the Americans and the Europeans referenced Beijing’s order that government employees not carry iPhones or any foreign-branded device to the office. More pointed were the reactions to how Beijing has used its new Espionage Law to raid the offices of the Mintz Group, a U.S.-based due diligence consultant. The cause was data collection on Chinese companies, in other words the essence of Mintz’s business. Survey respondents further noted how the Chinese authorities then fined Mintz’s Beijing operation $1.5 million. Reflecting on the event, one European business representative bemoaned how in China now the red lines of what one can and cannot do have “blurred” and how this inconsistent approach has made the business environment much riskier.
Aside from policy concerns, important as they are, American and European interests are not doubt also responding to the rise in Chinese wages. According to Beijing’s National Bureau of Statistics, wages and salaries in China have more than doubled over the past decade. This is a far faster pace than in western developed economies. To be sure, Chinese wages have hardly caught up to their equivalent in Europe, the United States, and Japan, but the gap has narrowed significantly. Even more significant, the rise in Chinese labor costs has made operations in Vietnam, Indonesia, the Philippines, and elsewhere in Asia more attractive than in China. These comparisons mean more to those producing in China for sale on the world market than to those who have moved to China in order to sell to that country’s increasingly prosperous population, which no doubt explains why the new pessimism about China is more pronounced among technology and logistics concerns than retailers and service companies.
Washington and Brussels may have their reasons for wanting to distance their economies from China’s. It seems that Beijing has fed into the aims of these western governments by giving western business independent reasons to “de-couple” or “de-risk” from China. In the process, China is losing the western development and investing that it once enjoyed and that heretofore was such an important part of China’s economic progress.
Read the full article here