EU Chamber Warns of China Investment Withdrawals

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May 29 – Davide Cucino, president of the European Union Chamber of Commerce in China, has warned that the investment climate among European businesses in China is becoming increasingly negative.

Citing stalled reforms and perceived discrimination, the Chamber – in conjunction with Roland Berger Strategy Consultants – found through a recently conducted survey that problems with market access, regulatory barriers and rising costs are all cause for concern. To illustrate that point, just over one-fifth of some 557 EuroCham members that responded to the survey reported that they are considering moving investments out of China.

“There are indications from this survey that as reform continues to stall and costs rise, a previously reliable stream of FDI may slow and planned investments may be shifted to other emerging markets,” the chamber said. Foreign direct investment into China by the European Union dropped 28 percent year-on-year over the first four months of 2012, according to the Chinese Ministry of Commerce. The Ministry has blamed the drop solely on the Sovereign Debt Crisis.

The European Union, while acknowledging the impact of the financial crisis in Europe on investments in China, nonetheless stressed that the overall investment environment in China has been deteriorating.

“If I were a government official, I would be worried about this with respect to FDI,” Cucino said.

The chamber said 36 percent of professional services companies surveyed said the European debt crisis has negatively affected their businesses in China, though 63 percent of all respondents said they plan to increase their investments here.

“This is a story of two parts, firstly problems in the EU and the high value of the RMB against the Euro, coupled with increasing costs of business in China. China is no longer a destination for labor intensive, export driven manufacturing, it is now becoming a nation of consumers, and international investors need to adapt to this,” comments Chris Devonshire-Ellis, founding partner of Dezan Shira & Associates. “For some, China is no longer the most suitable destination and they may be better off relocating production to Vietnam, India or elsewhere in Asia. For most businesses, however, China remains an important market, and although regulatory and protectionist problems still need resolving, they are not generally sufficient to prevent growth. China is a developing market and the opportunities remain intact for foreign investors to do well here.”

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