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2021-09-03 | South China

European companies committed to South China, seek improvements to the business environment

3rd September 2021, Shenzhen – The European Chamber South China Chapter today launched the Business Confidence Survey 2021. The report details European companies’ outlook on the business environment over the next two years and highlights the key challenges they face.

Overall, European companies are more committed than ever to South China as an investment destination. According to the report, 90% of respondents say they have no plans to relocate their business outside of the region, and only 6% are considering relocating to other markets after three years.

While just over a year ago, European companies were looking at supply chain diversification, to reduce over-reliance on China, increasing numbers are looking to onshore more of their business and strengthen their position in joint ventures. Overall, there are five times as many manufacturing companies onshoring as there are offshoring. This is largely being driven by both a desire to hedge against potential disruptions to global supply chains as a result of geopolitical frictions, and legislation under China’s cybersecurity regime that is pushing companies to localise their information technology and data systems.

Despite this increased commitment, many challenges remain. European companies report difficulties with human resources, both finding talent locally and bringing it in from abroad. Nearly a third of firms are trying address labour shortages by offering higher salaries, while 23% are aiming to solve this by increasing automated processes. However, the issue of bringing in foreign talent can only be resolved by changes to the current travel restrictions that are preventing people from bringing their families to China.

In terms of governance in South China, coordination among local government departments is the area that requires the most improvement, and 40% of respondents rank access to information in English as a top-three concern. Transparency and implementation of local policies is also an area that needs to be addressed. For example, only 41% are satisfied with the level of public information available on the Greater Bay Area (GBA) plan, and not a single member reports finding useful information on the GBA on government websites. Meanwhile, only a quarter of members are aware of planned incentives available under this important regional initiative.

“European enterprises are set on deepening their exposure to Chinese market. 87% of the respondents in South China plan to expand their current business, which reflects the most optimistic investment outlook. With our members more committed to South China than ever, the European must redouble its commitment to improving the business environment and advocating for a level playing field,” said Klaus Zenkel, chair of the South China Chapter. “As China moves into its next phase of development, European companies in South China have significant contributions to make, particularly in the areas of advanced manufacturing and low-carbon solutions and technologies, which are of immense importance to China as it looks to upgrade its value chains and achieve carbon neutrality by 2060.”

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Shen Duan