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China’s amended anti-espionage and data laws threaten to spur decoupling with Europe by making it difficult for foreign companies to invest, according to a European business lobby group.
The remarks from BusinessEurope, which represents commercial lobby groups from across the EU, come after China sought to allay growing concerns over the foreign investment environment last week with a memo ordering local authorities to cease discriminatory practices.
BusinessEurope deputy director-general Luisa Santos warned that new laws restricting data flows out of China, coupled with severe punishments for those charged under amended anti-espionage legislation, were concerning foreign investors.
“If people are afraid you could be going to jail in China” by sharing data with Europe, then “you have to make some very difficult choices and this could effectively lead to the decoupling that we all want to avoid,” Santos said in an interview in Beijing.
Foreign chambers of commerce have complained that new Chinese laws on cross-border data flows are too vague, making it hard for multinationals to conduct normal business and research activities in conjunction with their international operations.
The European Union Chamber of Commerce in China recently issued a report detailing 1,058 recommendations to Chinese authorities about the data laws and other practices it says provide unequal treatment for foreign companies in the country.
“The main objective is to show we still care . . . China is together with the US our major trading partner,” Santos said of her visit to Beijing. “At the same time the relationship is facing a lot of challenges.”
She said regulations in Europe requiring greater due diligence on issues such as forced labour meant that companies needed to strengthen their supply chain compliance and traceability.
But China has been cracking down on due diligence companies, detaining local employees of US group Mintz and investigating others, such as expert network CapVision, making compliance more difficult.
Santos said if companies struggled with supply chain traceability requirements, “or if that information is not accurate or positive then there’s a very high risk of disengagement from the Chinese market”.
Increasingly, companies would begin deploying an “in China for the Chinese market” strategy, separating their local operations from overseas networks and investing in new manufacturing capacity for exports.
She said other concerns among European business included China’s stance on the Ukraine war, its insistence on retaining developing nation status in the WTO, which entitles it to preferential treatment, and slow visa issuance.
China’s Ministry of Commerce has sought to allay concerns from foreign chambers of commerce. In a memo issued last week, it ordered the “clean-up” of regulations that discriminated against foreign investors.
These included measures such as forcing companies to undergo a longer process to apply for permits, not allowing foreign brands to benefit from subsidies, and stopping them from participating in local government tendering and procurement.
Commenting on the memo, the European Chamber said it “looks forward to the release of a timeline and more specific implementation guidelines” while British Chamber head Julian Fisher said the announcement would “help install confidence in the Chinese market among our members”.
But president of AmCham China Michael Hart said after three years of Covid restrictions, geopolitical tensions and challenging US-China relations, getting companies to invest again “isn’t like flipping a switch”.
“We’ll have to see what comes next in terms of actions and then we’ll see if companies gain enough confidence to approve new investments,” said Hart.
