China Market Opening Delivers Progress and Confidence Among British Businesses Operating in China, But Challenges Remain

• Over half of British businesses in China (54%) are optimistic about their operations in China during 2020.
• British businesses intend to increase investment in China next year (60%). Two thirds would increase investment if further opening-up was introduced.
• Businesses are concerned about the health of the global and Chinese economies.

10th December 2019, Beijing – The British Business in China: Sentiment Survey 2019-2020 finds that over half of British businesses operating in China report that they hold an optimistic outlook for their sector in 2020 and almost two thirds of companies intend to increase investment in their China operations next year. This has been driven by an overwhelming confidence in the potential of the market.

One third of businesses report that they have experienced market opening in their sector over the past year.  Actions taken by the Chinese government to address long-standing market concerns have also been recognised by British businesses in this year’s survey.  This is best captured with concerns over the protection of intellectual property dropping eleven places from being the second most pressing regulatory challenge last year.  Steps taken by the Chinese government to improve the IP environment are having a positive impact on the experience of investors.

Yet challenges remain.  Even with a high degree of optimism and commitment to invest next year, nearly half of British businesses (48%) reported that doing business had become more difficult over the past year.

Global economic uncertainty and slowing growth are beginning to weigh on British businesses in China as they plan for the year ahead.

Navigating cybersecurity and IT restrictions remains the most pressing challenge for British businesses operating in China followed by accessing or moving company finances and increasing competition from state owned enterprises.  British businesses call for competitive neutrality and a fair playing field.

There is clear evidence that if these obstacles are removed and a fair playing field is delivered that British businesses will follow with investment—64% of businesses said that if greater market access were granted, they would increase investment.  This translates into jobs and employment.  Next year British businesses stated that they would increase headcount by an average of 14 people per company with hospitality, built environment and healthcare leading the way.

“British businesses have a long history in China and more companies continued to enter China for the first time over the past year.  The optimism captured in this year’s survey of British businesses already on the ground in China is encouraging as is the significant work the authorities have taken to address foreign investors’ concerns, such as intellectual property rights,” said St. John Moore, Chairman of the British Chamber of Commerce in China.  “Yet there is more to be done to ensure a fair and level playing field where companies can compete on merit.  The British chambers across China will continue to work in partnership on this mission”.

The British Business in China: Sentiment Survey is an annual national survey of British businesses operating on the ground in China.  This is the second survey and collated the views of 249 British companies across China, a year-on-year increase of 17%, with participation from leading large-scale FTSE companies and growing SMEs and start-ups.  Collectively, these companies represent upward of £22 billion of revenue connected to China.

Key findings:

• The majority of businesses (54%) have an optimistic outlook for their sector for next year, although this is down from 65% last year.
• The majority of respondents will increase investment next year (60%), primarily because of market potential (79%).
• Nearly half (48%) believe business became more difficult, a rise on last year.
• The top three regulatory burdens over the past year are:

1) Navigating cybersecurity and IT restrictions.

2) Accessing or moving company finances.

3) Competition with SOEs or state-sponsored competition.

• A quarter of businesses believe that foreign-invested enterprises are treated unequally compared to domestic companies. Furthermore, British businesses already on the ground in China believe the Foreign Investment Law will have no impact on their existing operations in China, at nearly two fifths.
• Trends companies are most interested in are technological innovation and supporting Chinese outbound investment.
• Businesses are most concerned by global economic uncertainty and the Chinese economic slowdown, which they project will have a greater impact than the US-China trade war or Brexit.
• If the UK leaves the European Union, 48% of British businesses based in China stated a UK-China free trade agreement would have a positive impact on business opportunities in China.

In these unprecedented times, British businesses are committed to supporting China in its economic transition. They welcome efforts by the central government to level the playing field for foreign firms and recognise significant improvements in a number of areas such IP protection.

While these businesses have shown confidence in China, market potential can only sustain their optimism so much.

There are clear cases in which strong government action has led to substantial improvements in the business environment. Domestic and foreign businesses would all benefit if this same focus were applied when addressing other business challenges, allowing them to grow as equals in a dynamic market and contribute to the continued prosperity of the Chinese economy.

About the British Chambers of Commerce in China:

The British chambers of commerce in China consist of the Beijing, Shanghai, Guangdong and Southwest Chambers. We are a group of independent, not-for-profit organisations for British business focused on boosting UK-China trade and investment across China on behalf of a strong and diverse membership. With over two decades’ worth of business experience in China, we provide advocacy, advice and networking opportunities for our members, helping their business reach its full potential in one of the world’s fastest growing markets. The British Chambers are recognised as official representatives of British business in China by both the British and Chinese authorities.

For more information please contact Rachel Tsang at rachel.tsang@britishchamber.cn