Explained: Why global companies are ditching China

By India Today Business Desk: A new survey by the European Union Chamber of Commerce in China has found that business confidence in the country is at its lowest level on record.

Of the 570 companies polled as part of the survey, two-thirds of respondents said that doing business in China has become more challenging in recent years.

“Faced with growing risks and a more volatile operating environment, European companies have started reviewing their investment and operational strategies, and ensuring their supply chains are fit for more uncertain conditions,” said the survey.

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At least 11 per cent of the survey’s respondents have shifted existing investments out of China and 8 per cent have decided to move future investments previously planned for China elsewhere.

Moreover, one in 10 have already shifted, or plan to shift their Asia headquarters out of Mainland China. Confidence crisis There are a number of reasons for this decline in confidence. One is the Chinese government’s increasing focus on national security.

This has led to a number of new regulations that have made it more difficult for foreign companies to operate in China. The government has banned the use of certain foreign products in computers handling sensitive information.

For instance, the government recently prohibited the use of products from Micron Technology Inc, which is the largest chip manufacturer in the US, in computers handling sensitive information, citing unspecified security flaws, without any explanation.

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The US chipmaker is expected to now open a semiconductor test and packaging unit in India, and it is expected to create 5,000 jobs.

Many companies have highlighted that the business environment in China has become “more political” in recent times.

Another reason for the decline in confidence is the Chinese government’s increasing pressure on foreign companies to transfer technology.

This has led to a number of high-profile cases in which foreign companies have been accused of violating Chinese laws.

Finally, the Chinese economy is slowing down, which is making it more difficult for foreign companies to make profits.

No ease of doing business

European Chamber President Jens Eskelund said, “The negative trends we see in this year’s survey are concerning and reflect both recent challenges — brought by uncertainties in China’s policy environment and rising geopolitical tensions—and the persistence of long-standing market access barriers.”

“For China to turn the tide and allow European companies to develop and contribute to their full potential, we really need to see concrete action,” he added.

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Not just European companies but a growing number of global companies are relocating their investments and Asian headquarters away from China.

While the Chinese government has pledged to improve business conditions, companies are skeptical about whether these promises will be kept.

In the meantime, the trend of global companies ditching China is likely to continue – a development that has already started benefiting India in its goal to become the manufacturing hub of the world.

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