Foreign businesses say they feel effects from China’s turn inward

An annual survey, released Thursday by the American Chamber of Commerce in Shanghai, showed that 45% of 338 members surveyed said China’s strict rules related to entering the country had a negative impact on their operations, while more than a quarter said they had hit profitability in the country.

China has kept its borders mostly closed since March 2020 in a bid to keep Covid-19 cases in check. Travelers need special government approval to enter China, and those who enter must be quarantined for up to 28 days. Visa issuances have been very limited, and many expatriates have had to travel without their family members, who were unable to get visas.

That has made it difficult for multinationals to send in employees from overseas into China, including senior executives to assess the market or critical engineering talent, said Jeffrey Lehman, the chair of the chamber’s board of governors.

This year, more respondents said they felt government favoritism toward local companies. Half of the companies that took part in the AmCham Shanghai survey conducted in June and July felt strong or some favoritism toward local companies, up from 47% a year ago, particularly in areas such as technology hardware and software, pharmaceuticals and medical devices and life sciences.

Still, the AmCham Shanghai survey indicated that among its member companies, optimism about the business outlook in China over the next five years rose this year after declining in the past two years. Seventy percent of the AmCham Shanghai members surveyed expect revenue growth in China over the next three to five years to outpace their global operations.

The European Union Chamber of Commerce in China echoed similar sentiments in a report out Thursday. In its annual China position paper, the chamber cautioned that the role of state-owned enterprises in China’s economy looked set to increase.

“China is all about balancing growth and control. Now, control is more important than growth," Jörg Wuttke, the chamber’s president, said in a news conference ahead of the report’s release.

China was favoring state-owned enterprises over foreign companies, the European Union Chamber said. That was particularly in areas such as medical equipment and firefighting equipment, where the chamber said it had noticed a “buy China" policy in public procurement.

China’s State Council Information Office and Ministry of Foreign Affairs didn’t immediately respond to requests for comments.

The European Union Chamber also said in its report that China’s push for national security and self-sufficiency risked alienating foreign businesses and might ultimately damage its own economy in the longer term.

China has been moving to eliminate its dependence on other countries while placing priority on Chinese companies and domestic consumption as the main drivers of economic growth, in a strategy widely translated as “dual circulation." That is a shift from its decadelong course of relying heavily on foreign investment, talent and exports, and multinationals operating in China fear that their technologies and investments may end up playing more of a supporting role.

China’s strategy could lead to a fall in foreign direct investment and deceleration in innovation, the European Union Chamber said.

European companies were also facing an increase in nationalism among consumers in China and feeling increasingly vulnerable to boycotts because of geopolitics, Mr. Wuttke said.

Swedish retailer H&M Hennes & Mauritz AB was the subject of calls for consumer boycotts in China earlier this year after the company raised concerns about allegations of forced labor in the country’s western cotton-producing region of Xinjiang.

According to the Amcham Shanghai survey, about 13% of the retail and consumer members polled said they had reduced planned investments into China because of Chinese consumer boycotts.

Both groups said their members are committed to the Chinese market and that they aren’t leaving the country.