UK businesses in China require regulatory clarity

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Beijing needs to provide more regulatory certainty on data security and other issues to help restore confidence from foreign investors, the British China Chamber of Commerce has warned.

A poll last month found that sentiment among House members had recovered since last December, with 8% describing themselves as “pessimistic”, down from a record 42%.

But six months later China with draconian Covid-19 restrictions abandoned, 70 percent of chamber members were still adopting a wait-and-see attitude on new investments as they sought regulatory clarity, the business group said.

“There’s a bit of nervousness; it’s not just in individual sectors, but across the board,” said Julian MacCormac, the Speaker of the House, who released his 2023 position paper on British affairs in China on Tuesday.

The outgoing president of the EU Chamber of Commerce in China, Jörg Wuttkehe warned that foreign investors were being cautious and uncertainty around data security and changes to espionage laws were dogging businesses.

China is trying to encourage private companies to start investing again to fuel a recovery in the world’s second-largest economy, which grew at its slowest pace in decades last year due to tight Covid controls.

But foreign firms have complained of mixed signals from Beijing, which has repression of advice in recent weeks some of their work has touched on national security issues due to the allegations.

Geopolitical and trade tensions between the US, allies and China have darkened the outlook. China this week announced that it was lock chip produced by the US company Micron from use in major information technology networks.

In its position paper, the UK Chamber made a number of recommendations to improve the business environment, saying data security and IT regulations in China are among the top challenges facing UK businesses in the country.

China has issued requirements covering areas such as how much data foreign businesses can send overseas. But these laws lack clear definitions of what constitutes sensitive data, sensitive information, and personal information, particularly in industry-specific applications such as for the automotive industry.

Although the laws provided for heavy punishments, compliance was difficult due to legal ambiguity, MacCormac said.

The chamber also feared that sudden political changes were generating uncertainty. This also applied to more welcome regulatory reversals, such as the government’s decision to do so end his zero-Covid regime in December or to postpone to 2021 income tax reforms that would have increased costs for foreigners.

Analysts said China’s economic recovery was weaker than expected as exports slowed and consumers refrained from the “revenge spending” some expected once the lockdowns ended.

“That wave of relief and ‘hurrah’, it’s kind of not there,” MacCormac said of corporate sentiment after the end of zero-Covid.

The Chinese government is aiming for 5% growth in gross domestic product this year compared to 3% last year.

Wuttke, a member of the EU House, said in a briefing on Monday that China would struggle to generate rapid growth without painful reforms to reduce its growing debt burden and address other structural challenges.

“China has reaped the low-hanging fruit,” he said.

He didn’t believe China had “peaked” because that would imply it could decline, but instead said it had “stopped,” with only slight growth expected from here.

“This time it is difficult because the room for maneuver . . . it’s a lot less,” Wuttke said.