How European businesses feel about China’s economic direction | Live with Lizzi Lee

Good investing starts with an edge, and our ChinaEDGE intelligence database and newsletter reports help you get sharp on China. Every week, our host Lizzi Lee interviews the most knowledgeable minds on China for analysis of the ever evolving business and technology ecosystem.

In this episode of Live with Lizzi Lee:

Joerg Wuttke, president of the European Union Chamber of Commerce in China, explains what he sees as major challenges to foreign businesses in Xi Jinping’s China.

Below is a transcript of the video:

Lizzi: Joining me today is Mr. Joerg Wuttke, president of the European Union Chamber of Commerce in China. Thank you so much for being here with me.

Joerg Wuttke: Thank you for inviting me.

Lizzi: So I want to start by asking if you can tell me a little bit about your personal history of engagement with China. From your point of view, what has been the most prominent feature of the current era in terms of doing business in China?

Joerg Wuttke: Well at the end of next week, I’ll have my 40th anniversary. I arrived 40 years ago by train from Germany in the summer of 1982, and I lived on and off here for 35 years. So I’m one of those fossils. Of course, to me, in this respect, the era of Xi Jinping is important, but it’s just ten out of 40 years. I’ve also witnessed the opening up of Deng Xiaoping and Zhu Rongji in particular economically as well as politically.

And of course, the sense that we have from this administration is that it’s more of a closing up, more going into a self-reliance mode.

So the major difference for businesses, of course, on the upside was the president’s fight against corruption which has really made our life better.

Secondly, of course, as a private citizen and as a businessman, the clearing of the skies that we had incredible pollution in China and particularly in Beijing, and he has really made the difference and effort there.

So we are very keen also to see where 2030 peak of carbon 2060 will head.

But otherwise, of course, we’re very distressed about the zero-tolerance policy, the kind of closing up of the country. We see no end to it.

Lizzi: Right. And we see in the media that there seems to be some chatter that there’s this ongoing shift in the way that foreign businesses are perceived and treated by the Chinese government.

Do you get the sense that China is going back to a more fundamentalist, socialist model of economic and economic management in Xi Jinping’s era?

Joerg Wuttke: Well, clearly access to the market was always very difficult. The European Chamber was founded in 2000 with the sole purpose of actually trying to help with opening up. Of course, there was a different spirit and a different kind of wipe in 2000, 2001, when China joined the WTO. And we have noticed quite an opening up drive afterwards.

But since about 2005, and certainly since 2010, it becomes a little bit more closed up. And also, a touch of nationalism is being detected there. So in a way, actually, foreign business is established here, but in a way that no newcomers are coming into the country.

That’s a notable fact that smaller size companies in Europe look at China and say, “oh, it’s not worth it. It’s too difficult. I will go to Thailand, Philippines and other countries.”

So the way it sets out, it’s an established game. The big boys are here, and most of them are successful.

The other ones partly are struggling. But where this all is going to lead, certainly in times of dual circulation, self-reliance, and the kind of creeping nationalism, it’s very hard to read between the fault lines.

Lizzi: Right. And during your term of office, you have interacted with Chinese officials across different bureaucratic levels.

Do you get the sense that there’s a critical mass of pro-market, pro-reform bureaucrats who are kind of pushing against some of the more fundamentalist economic agenda top-down from Beijing leadership, as you mentioned?

How much sway do you think they have in steering policies in more pro-market directions?

Joerg Wuttke: Yeah. For most people, it’s just China, it has one voice. It’s the Communist Party. And that discloses itself in People’s Daily and China Daily and whatnot. But as a matter of fact, it’s quite diverse. I wouldn’t say it’s “Fifty Shades of Grey”, but pretty much a very diverse view on how the economy has to be run.

So, in a way, yes, you have those that actually want to put up higher borders, then there are those in the middle that actually, I would say, is the present administration, to a large extent, trying to cherry-pick who can go in and who can participate.

And there are those, of course, who know that an opening up of China would mean stronger growth, better competition, more quality and growth, and so forth. I would name the person, Liu He as one of them, the vice premier.

But also, Prime Minister Li Keqiang, who I met in May personally, has indicated that there must be a stronger reform push.

So, in a way, again, the Party rules and you have people that are trying to push the envelope. It’s possibly baby steps from their side. It’s important for us that we have allies like this.

But overall, of course, the atmosphere has far more has been far more ideological and rigid over the last 5 to 10 years.

Lizzi: I want to turn to the CAI, the comprehensive agreement on investment, a little bit. It has been on the back burner for a while. Do you think there’s any chance it will be rectified soon by the European Parliament?

Or more broadly, do you see a path for China and Europe to disentangle trade and investment discussions from human rights concerns?

Or should EU businesses be more proactively pushing back against some of the Chinese abuses in human rights areas?

Joerg Wuttke: We were so happy in December 2020 when it was eventually signed after all seven years of negotiations.

And of course, it was very distressing to see that in March it was put on the back burner by the European Parliament.

I would say rightfully so, because the five parliamentarians were sanctioned and of course you had all kinds of sanctions on think tanks and individuals. The sanctions from the Chinese side were outsized. But I hate sanctions in the first place.

But never mind the investment agreement, I think clearly in the deep freeze of a long period of time, even if these five individuals will be seeing the sanctions lifted, there will be no major change because it’s all about Xinjiang, it’s all about human rights.

And I see very little room for a compromise between Beijing and Brussels and the member states. So, in a way, it will be a thorn in the side of both regions.

It will be very difficult for European companies to operate in because we have new supply chain laws coming up. Certainly, we are also impacted by the Uyghur Act that came out in the U.S. recently. It becomes just more tedious and difficult to conduct business and many companies have already left the Xinjiang region or the supply chain because they can’t prove that they are no forced labor in their supply chain.

So yes, it’s going to be more difficult, but you can operate in China, you can have factories in Xinjiang if you can prove that you have basically conducted international norms.

But proving means it has to be a third international accredited auditor who does that. If you just run around and say you’re clean, it doesn’t help.

Lizzi: How has Russia’s invasion of Ukraine changed the sentiment among EU business community toward China?

Joerg Wuttke: Yeah. It came at a particular period of time. I mean, it was end of February and Putin invaded Ukraine and we had a Shanghai lockdown. It was really a double whammy.

We put out a study out that shows two black swans – things that we never thought is going to happen. The results in the survey done in May was very clear that European business sees a correlation between Ukraine and the situation over here. The word Taiwan always pops up.

I think that’s unnecessary. I really don’t see that there’s any imminent danger of a real blockade, a war in Taiwan.

But the fact is that headquarters see it like this. And, of course, the actions of the Chinese navy and army around Taiwan are certainly not helpful either. So in a way, Russia has dented the view on China.

People talk about diversification, but there’s also a different view on that. If you talk to the top managers of European companies here, they don’t see it as a major problem.

But the headquarters clearly are under a lot of pressure from public opinion, parliaments, NGOs, media, and so on and so on. And they clearly take actions there.

We can see that European companies are not leaving China, but we see that European companies are considering putting the money elsewhere in Asia and figures already prove it.

Lizzi: At this point, it seems Xi Jinping is all but secured to have an unprecedented third term. Are you concerned about the direction the country is currently going?

More generally, how should foreign investors and businesspeople adjust to the new reality of the Xi Jinping era in China.

Joerg Wuttke: Well, it’s nothing new. I mean, the man was in office now for ten years and he’s going to get his third term for sure. So, in a way, there will be not much change.

If anything, we learn from history is that people who have spent a long time in office hardened their stance rather than loosening up. And so, I guess that it will be more of the same. There will be more control.

But of course, what really concerns foreign companies now is this strong stance on zero-tolerance.

You can see the world has found its way back living with the Omicron virus, whereas here I must get tested every three days.

I’m trying to fly to Chongqing tomorrow. I’m not sure if I’m going to end up in quarantine either in Chengdu or when I come back in Beijing. It’s a bit of a strange situation that it’s hard to travel within China.

So, in a way, is it going to change? It must change. But China cannot open up the border. Now, there are vaccines if they have no herd immunity. It would be irresponsible to open up now.

But, what the European business community wants is strong vaccinations. We must find a way out of this, and I don’t see any exit strategy.