Why did British companies retreat from their investments in China?

British companies in China are delaying investment decisions due to the bleak economic outlook and geopolitical uncertainty, a recent study shows.

This pessimism was captured in the first annual survey conducted by the British Chamber of Commerce in China after the country emerged from strict pandemic controls, highlighting the continuing headwinds facing the Chinese economy beyond the disruptions caused by Covid-19 restrictions.

Faltering economic recovery

According to the British Chamber of Commerce in China, despite the easing of the strict restrictions imposed to combat the Coronavirus (Covid-19) until late last year 2022, British companies did not increase their investments in China due to many factors.

Reuters saw, today, Tuesday, December 12, 2023, that while the “peak of pessimism” recorded during the epidemic period is receding, British companies are delaying any new investments in China amid a faltering economic recovery, and they are also reducing the importance of the second largest economy in the world for their global operations.

Foreign investors have been angry with China for much of this year due to several factors such as a weaker-than-expected post-pandemic recovery, a series of office raids from Chinese authorities, as well as cash-strapped local governments offering lower investment incentives and higher investment returns.

The head of the British Chamber of Commerce in China, Julian Fisher, said: “In previous years, 80% (of companies) were investing more because of the market potential, but it seems that we are now entering a different phase than before.”

Unpromising results

The Chamber's findings, based on the opinions of Chamber members, during the months of October and November, revealed that 60% of companies felt that doing business in China had become more difficult over the past year, with 78% of these companies blaming economic factors.

Therefore, “British companies in China are moving effectively, with many of them delaying major decisions about investment and market entry, because more than half of British companies found that geopolitics makes it more difficult to operate in China, while 43% of companies were suffering from Regulatory issues such as obtaining licenses.

Foreign direct investment in China

Foreign direct investment in China has slowed significantly since the country abandoned its strict COVID-19 restrictions late last year, prompting the country to record its first-ever quarterly deficit in foreign direct investment during the July-September period, indicating pressure. Capital flow abroad.

While British companies are seeing a slow comeback, the trend in which companies are downplaying the importance of China to their global operations "appears to be leveling off," the chamber said.

Value of trade between the UK and China

Trade between the UK and China was worth £111 billion ($140 billion) last year, according to the UK Office for National Statistics, making China the UK's fourth-largest trading partner.