UK Firms Pause China Investment Decisions as Growth Slows

Reuters | December 12, 2023

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By Joe Cash

BEIJING (Reuters) -Sixty percent of British firms feel that a slowing Chinese economy presents a bigger challenge to their operations in the Asian giant than strict COVID curbs in place until late last year, according to the British Chamber of Commerce in China.

While the “peak pessimism” recorded during the pandemic is easing, British businesses are delaying making new investment in China amid a stuttering economic recovery and are downgrading the importance of the world’s No. 2 economy to their global operations, the chamber’s annual sentiment survey released on Tuesday showed.

Foreign investors have been sour on China for most of this year due to factors such as a weaker-than-expected post-pandemic recovery, a series of office raids by Chinese authorities, cash-strapped local governments offering fewer investment incentives and higher investment yields in the United States.

“In previous years, 80% (of firms) were investing more because of market potential, but it feels like we’re now entering a phase of real clarity,” Julian Fisher, the chamber’s chair said.

“(Firms) are a lot more pragmatic and there’s a lot less speculation,” he added.

AstraZeneca, BP, Jaguar Land Rover and Shell are some of the chamber’s members.

The chamber’s findings, based on members’ views over October and November, revealed that 60% of companies felt that doing business in China had become more difficult over the past year, with 78% of such firms blaming economic factors.

“(British) companies in China are effectively treading water, with many delaying key decisions around investment and market entry,” the report read.

Over half the companies surveyed said geopolitics was also making it harder to operate in China, while 43% of firms were struggling with regulatory issues such as licence acquisition.

Foreign direct investment into China has slowed substantially since the country abandoned its strict COVID-19 curbs late last year, leading the country to record its first-ever quarterly deficit in foreign direct investment over July-September, suggesting capital outflow pressure.

The chamber said that while “British businesses are experiencing a slow return in optimism,” a trend in which firms are downgrading China’s importance to their global operations “appears to be stabilising.”

Just under half of the surveyed companies listed China as a “medium priority” or “low priority,” with only 40% of firms recording it as a “high priority.” In comparison, fifty nine percent of companies saw China as a “high priority” over 2021-2022.

Trade between the UK and China was worth 111 billion pounds ($140 billion) last year, according to the British National Bureau of Statistics, making China the UK’s fourth largest trading partner.

(Reporting by Joe Cash; Editing by Jane Merriman and Jacqueline Wong)