Red tape and foreign brain drain plague EU companies in China

Forced technology transfer, reams of red tape and a Covid-19 clampdown on foreign talent have sapped business confidence among major European companies in China.

Even before the coronavirus pandemic, the number of overseas workers in the world’s second-largest economy was “nosediving.”

But now the exodus is undermining corporate culture, the European Union Chamber of Commerce in China reported after publishing its latest business confidence index survey.

Strict border restrictions enforced because of the Covid-19 crisis have left key personnel stranded.

“While some employees are still attempting to return, many have simply given up and moved on. There is a concern that China’s foreign talent pool may never fully recover,” the EU Chamber of Commerce study revealed this week.

Key points:

• Market access barriers were reported by 45% of EU companies, a rise from the 44% in the 2020 survey.
• Unequal treatment still persists for 47% of European firms.
• Plans to reform China’s bloated state-owned enterprise sector appear to have stalled.
• Only 15% of respondents expect the private sector “to gain opportunities at the expense of SOEs,” the survey stated.
• At least 48% of those polled feared the complete “opposite.”
• Forced technology transfer continues to be a massive problem, despite the “Foreign Investment Law coming into force.”

Trickle economics: “More than a year after the border was closed to all but a trickle of returnees, the European business community in China is not clear why more efficient solutions cannot be implemented that would allow all foreign residents to return, provided they undergo quarantine procedures,” the EU Chamber of Commerce survey reported.

Strategic rethink: “Our members’ long-term commitment to the China market paid dividends in 2020, but geopolitical tensions are forcing us to reconsider our strategies here,” Charlotte Roule, a Board Member of the EU Chamber of Commerce, said. 

Decision time: “European companies are not decoupling by leaving China. Instead, [they] are considering which cross-border ties between China operations and global ones can and must be cut,” Roule pointed out.

Delve deeper: Chinese Premier Li Keqiang sounds like a stuck record when it comes to cutting red tape and opening up market access for small domestic companies. But when will that apply to foreign businesses?

China Factor comment: Overseas companies, including EU groups, are still waiting for President Xi Jinping’s ruling Communist Party to end what has been dubbed “promise fatigue.” And open up an array of markets.