The survey’s findings are in line with a report published this month by the US-based Human Rights Foundation (pdf), which found that “since the 2019 Hong Kong protests, the CCP has clearly signaled that foreign companies operating in China must help advance the its agenda, or face expulsion from the Chinese market.”

The politicization of business is one of many obstacles European companies report facing in China, in addition to unfair competition from state-owned enterprises, forced technology transfers, and opaque licensing processes. Chinese authorities have promised to accelerate reforms. But, according to the European Chamber, these reforms—which it calls a “grab-bag of incremental improvements”—have largely failed to materialize. As China’s economy struggles to rebound from Covid-19, the business environment will likely get worse for foreign companies.

David Baverez, a French investor based in Hong Kong, says that these obstacles, far from being a glitch in the system, are one of its features. He argues that an increasingly nationalistic Chinese government wants foreign companies to shoulder the burden of the economic downturn. “The cake is getting smaller, so we have to make them leave, and we’ll replace them with Chinese companies,” is how Baverez describes Beijing’s thinking.

“If there is a slowdown in the Chinese economy, you don’t want to let foreigners make money,” adds Jean-François di Meglio, president of the Paris-based research group Asia Center, and a former executive for BNP Paribas in China.

However, foreign companies have some leverage. China needs to find stable employment for those who lost their jobs due to the pandemic. Officials want to create 9 million new jobs this year, and they will need the private sector to meet that goal.

Although European companies in China appear to be wary of the increasingly political dynamics of doing business there, half of the respondents of the European Chamber’s survey plan to expand their China operations, and only 11% said they were considering shifting current or planned investments in China to other markets. That, says di Meglio, is why “if I was a Chinese leader, and I read this report, I would keep doing exactly what I was doing.”

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