UK businesses are still investing in China despite political differences

Wake not a sleeping lion.
Wake not a sleeping lion.
Image: REUTERS/Toby Melville
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Relations between their two countries may be at a low point but British businesses in China are feeling optimistic.

That’s according to the findings of the British Chamber of Commerce in China’s sentiment survey (pdf), which this year reflects the outlook for 2021 of 256 UK businesses in China. The respondents, who are anonymous but were asked to self-identify according to broad categories, reflect a range of companies and sectors, from professional services (15%) to advanced manufacturing and transportation (13%), and from SMEs to multinationals.

China’s total shutdown last January, in response to the first major Covid-19 outbreak in Wuhan, deeply hurt its economy. The “world’s factory” suddenly saw its industrial output dip by close to 15%, while retail sales fell by a fifth. But after a stringent and ultimately successful lockdown, the Chinese economy recovered faster than the rest of the world, buoyed by government relief measures and global demand for goods like medical masks.

The sentiment survey found that British businesses are committed to the Chinese market and expect to grow their operations there, in spite of regulatory and geopolitical challenges. A large majority of respondents said they planned to either increase (44%) their investment in China or keep it at the same level (37%). While this is down from last year, when 60% planned to invest more in China, it shows that most businesses aren’t planning to scale back. Only 3% of companies plan to relocate their operations out of China, and 2% say they are considering doing so.

However, as the survey notes, multinationals have more legroom to invest than SMEs. While only 7% of respondents plan to decrease investment in China next year, 55% of them plan to decrease investment by more than 25%, and three quarters of those are SMEs. They cite economic uncertainty, higher operating costs, and reduced demand as reasons. One third also cite geopolitical uncertainty and regulatory challenges.

China has enacted radical market reforms in the past year to make it easier for foreign firms to enter certain closed-off industries. But the survey shows that this progress is concentrated in a few sectors, and two fifths of all British businesses in China say they still face regulatory challenges, especially in navigating cybersecurity and IT restrictions, accessing or moving company finances, and dealing with what they see as unfair competition from state-owned enterprises.

Relations between China and the UK have also deteriorated significantly this year. The UK opened a path to citizenship for Hong Kong residents, banned Chinese tech giant Huawei from its telecommunications network, and has repeatedly criticized China’s response to the coronavirus and its treatment of the Uyghurs.

China has made various vague threats to the UK in response, but hasn’t retaliated yet. Yet British firms in China are clearly worried and argue that politics are bad for business. While the survey is a lobbying document, and should be read as such, it nonetheless highlights legitimate concerns among businesses that are likely to be stuck in the middle of drawn-out tensions between their two governments.