‘Ideology trumping economy’: EU body warns firms souring on China

China’s “inflexible” COVID-19 curbs and politicisation of business are eroding its standing as an investment destination, a top European industry group has warned.

The European Union Chamber of Commerce said in a report on Wednesday that firms increasingly view China as “less predictable, reliable and efficient” due to the prioritisation of ideology above the economy and pragmatic policymaking.

The business lobby group said Beijing’s ultra-strict “dynamic zero COVID” policy had caused “unprecedented disruptions” to industry, while factors such as favouritism towards state-owned enterprises had further undermined confidence.

The industry body, which represents more than 1,700 European firms in China, said most companies had put their operations in the country in “wait-and-see mode” and began to evaluate alternative markets, with the bulk of European investment over the past four years coming from a handful of large firms.

“While in the past Beijing’s reform agenda helped to ensure stability, propel economic growth and facilitate huge inflows of foreign direct investment, now ideology is trumping the economy,” the industry body said in an accompanying press release.

The European chamber said Beijing should introduce “comprehensive market reforms” to restore business confidence, which would require giving policymakers the political space to “‘make mistakes’, discuss ideas and ultimately change course.”

“European companies are still eager to contribute to China’s economic development, but investment into the country is unlikely to increase while China keeps its doors closed and companies perceive political, economic and reputational risks to be mounting,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China.

“Companies are also crying out for transparency in the business environment, as they must now align their China operations with both corporate pledges and new supply-chain legislation in the EU and the United States.”

China is the last major economy using draconian restrictions such as lockdowns and border controls as part of a zero-tolerance strategy aimed at stamping out COVID-19 at almost any cost.

The controversial strategy has taken a heavy toll on the world’s second-largest economy, which narrowly avoided contraction in the second quarter with a 0.4 percent expansion in gross domestic product (GDP).

Beijing has defended the policy as necessary to save lives, warning against “lying flat” against the virus.