Europe Turns Against China

China wants to do business in Europe. It is the world’s largest region by GDP, even if the economy has slowed. But many companies in European nations have lost some of their confidence in China as a good place to do business. Much of this has to do with restrictions that the People’s Republic has on foreign business. Those restrictions may hurt the Chinese economy longer term. That harm will be the result if China’s growth relies at all on the financial benefits of housing operations from companies that are headquartered outside its borders.

The European Chamber of Commerce has released a report that contains this:

As a direct result of market access and regulatory barriers, European companies report missing out on considerable business opportunities worth a significant share of their revenue in China. European companies hope to compete in new areas and contribute to the development of a knowledge-based and green economy in China. However, as companies become increasingly aware of asymmetries and unfairness caused by the stalled regulatory reform in China, coupled with the increasing maturity of the marketplace, a significant proportion of European companies state that current trends are causing them to consider shifting investments from China to other markets.

These complaints are not new, but they may have become more prevalent as EU-based nations increasingly rely on China as a place to boost sales and make profits. When the amount of their Chinese revenue was relatively small, these firms noticed restrictions, but not yet as a big a factor in their overall global success. China, however, has became a very large portion of their prosperity in many cases. That has caused China’s disadvantages to bite.

The ECC report adds:

Unfortunately, the development of the regulatory environment is not in step with the development of the market. Despite high-level pronouncements regarding the importance of foreign investment and equal treatment for all companies registered in China, the regulatory environment for foreign enterprises conversely appears to have worsened.

These concerns are not just European ones. American companies like Walmart (NYSE: WMT), General Motors (NYSE: GM), Microsoft (NASDAQ: MSFT) and McDonald’s (NYSE: MCD) have had to work in a nation where government-backed unions are powerful, local competitors and the general population steal intellectual property, and they do not have a chance to bid on many government projects.

China’s approach to foreign countries is causing it to cut its own economic throat.

Douglas A. McIntyre