PC: Getty Images {Foreign direct investment from Germany to China grew by about 30% in the first eight months of the year from a year ago, China’s Ministry of Commerce said Monday.}

According to Joerg Wuttke, head of the European Union Chamber of Commerce in China, European companies operating in China are revising their market strategies in light of this year’s Covid controls that further cut off China from the rest of the world.

The rigorous Covid policy in China has curtailed commercial and international travel, particularly in the wake of Shanghai’s two-month lockdown earlier this year.

China initially recovered from the shock of the pandemic more quickly than other nations, thanks to the stringent efforts of the previous two years.

However, the regulation stands in stark contrast to a world that is gradually loosening numerous Covid prohibitions.

At a press conference for the release of the chamber’s yearly China position paper on Wednesday, Wuttke told reporters that for European businesses, “we talk about a full realignment of our attitude on China over the previous six months.”

He claimed that the commercial lockdowns and unpredictability had made China a “closed” and “distinctively different” nation, which could lead to enterprises leaving.

Only a few extremely tiny enterprises have so far departed, according to Wuttke, while most have stayed. However, he emphasised that the chamber cannot survey companies who have chosen not to enter China at all.

According to the chamber’s position paper, foreign direct investment from the EU into China decreased by 11.8% in 2020 compared to the previous year. There were no more recent statistics available.

The trend of declining FDI is unlikely to reverse while European executives are severely restricted from travelling to and from China to develop potential greenfield projects, the paper stated. “While there are still ‘a select group of high-profile multinational companies ready to make billion dollar splashes’,” the paper said.

In the first half of the year, China’s GDP expanded by 2.5%, significantly less than the declared aim of about 5.5%. Beijing warned that the nation might miss that goal in the latter part of July.

Authorities haven’t done much to remove the so-called dynamic zero-Covid policy in the interim.

Travelers from abroad and within China no longer need to spend as much time in quarantine. However, intermittent lockdowns, whether in Chengdu or the tourist island of Hainan, have kept business uncertainty high.

Based on the time required to vaccinate a sufficient number of people, Wuttke stated that he anticipates China opening its borders no earlier than late 2023.

“Ideology prevails over economics,”
According to the executive summary of the chamber’s position paper, European enterprises who have stayed in China increasingly operate in a climate where “ideology outweighs the economy.”

Despite working here intermittently for 40 years, Wuttke remarked, “I’ve never seen anything like this, when suddenly, ideological decision-making is more significant than economic decision-making.” And perhaps that is reinforced by outside voices, American sanctions, and America cutting off China, so I can see why self-reliance is so important.

He was making reference to China’s recent efforts to develop its own tech and other businesses.

The United States has prohibited US businesses from providing critical components to Chinese tech firms like Huawei, among other restrictions.

The chamber stated China’s Covid policy represents the nation’s “march away from the rest of the world,” without specifying what this ideology was made out of.

Despite numerous in-depth, open discussions with Chinese government representatives, Wuttke claimed that the policy has remained the same.

He remarked, “I think these folks are caught between what they see needs to be done and what could be done. “Then, from the top, there is a very harsh, very explicit instruction that says, ‘This is how it has to be,’ and ‘that is the philosophy. How therefore can you criticise ideology?

According to a summary of his statements released by China’s Ministry of Foreign Affairs, Chinese President Xi Jinping stated earlier this month that the nation has “continued to respond to Covid-19 and advance economic and social growth in a well-coordinated way.”

According to the press release, Xi acknowledged that “China has entered a new developmental stage” but insisted that “China’s door of opening-up and friendly cooperation would always remain open to the world.” His comments were made on his first international tour since the pandemic started, which included stops in Kazakhstan and Uzbekistan, where he also had meetings with regional officials.

The Chinese leader has made an effort in recent years to unify the nation behind the Communist Party in power and his aspirations for the “great rejuvenation of the Chinese nation.” At a significant political gathering next month, Xi plans to increase his level of control.

China’s expansive market
Foreign companies operating in China already tend to remain there for the time being.

Wuttke asserted that even if China’s economy expands more slowly, it will still succeed because of its size and low base, which “really creates a strong case [for foreign enterprises].”

Some are investing more, particularly the large German automakers.

Germany’s foreign direct investment increased by almost 30% in the first eight months of the year compared to the same period last year, a quicker rate than the 23.5% pace seen in the first seven, according to China’s Ministry of Commerce on Monday.

The U.S. investment, which according to official data increased by roughly 36% in the first seven months of the year, was not updated by the ministry.

Foreign companies can still find some niche markets to exploit.

Wuttke claimed that China is expanding local market access, albeit in regions where locals already control the market or are “desperate” for international investment. Otherwise, I would cease writing this paper, to be honest.