European enterprises operating in China have reached a critical point, prompting urgent calls from the EU Chamber of Commerce in China for immediate action from Beijing. According to a CNBC report, the chamber’s president, Jens Eskelund, has highlighted the increasing pessimism among European businesses regarding their future in China.

“We truly believe we are at a critical juncture. If action is to be taken, it must occur now,” Eskelund stated during a recent press briefing. This reflects widespread concern about whether to continue investing in China amidst a deteriorating business climate.

China, the world’s second-largest economy, has seen a significant downturn in its growth rate. Despite promises to improve the business environment, the lack of substantial progress has led to “promise fatigue” among foreign investors, according to the EU Chamber’s latest position paper. The document underscores the urgent need for Beijing to restore investor confidence through decisive measures.

Recent data from China’s Ministry of Commerce reveals a sharp decline in foreign direct investment (FDI), with a drop of 29.6% during the first seven months of the year compared to the same period in the previous year. This steep decline, exacerbated by a high baseline from the previous year, has further intensified the concerns of foreign investors.

In response to these concerns, Chinese authorities have introduced several policy changes aimed at improving the investment climate. These include allowing foreign enterprises to fully own hospitals in certain cities and regions and permitting human stem cell research and treatments in designated areas. Additionally, plans to relax restrictions on foreign investment in manufacturing have been announced, aiming to further open the market to overseas firms.

However, despite these advancements, the impact on European businesses has been limited. Eskelund emphasised that optimism about profitability in China over the next two years is at a record low among chamber members. “Perhaps there is a need to expedite the resolution of regulatory hurdles given the current market conditions, which do not seem to provide the same returns as they did prior to the pandemic,” he remarked.

Official projections forecast a 5% expansion for China’s economy this year. However, recent economic indicators show weak domestic demand. Retail sales grew by only 2% in June and 2.7% in July, while imports in U.S. dollar terms increased by just 0.5% in August year-on-year.

While the long-term potential of China as a consumer market remains unquestioned, the immediate need for concrete actions to restore investor confidence is critical. “Long-term, I don’t think anyone truly questions the potential of China and its capabilities. That is not the issue here,” Eskelund said. “We observe remarkable supply chains and recognise the long-term prospects of China as a consumer market. What we need is to witness concrete actions that infuse confidence, allowing us to believe that investments can be made within a reasonable timeframe.”

European businesses in China are at a pivotal moment, with declining FDI and a challenging business environment prompting calls for urgent reforms from Beijing. The EU Chamber of Commerce in China stresses the need for immediate and effective measures to restore confidence among foreign investors and ensure a more stable investment climate in the future.

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