The majority of British companies are taking a “wait and see approach” on long-term new investments in China amid their pessimism hitting record levels, according to the British Chamber of Commerce in China (BritCham China).

There has been a clear rebound of optimism among British businesses in China since the end of 2022, due largely to the Chinese government’s shift in policy, but the majority are still taking a “wait and see approach” on new investments in the second largest economy in the world, according to the British Business in China: Position Paper 2023 released on May 23.

The latest BritCham China business sentiment survey shows 76% of its members feeling more optimistic for the coming  year following China’s reopening, compared to 42% that reported a pessimistic outlook for the China  market in the previous survey conducted in December 2022.

The optimism, however, is conditional on being able to restore the trust and certainty  needed to fully realise China’s undoubted market potential. Increasingly strained geopolitical relationships, a slowing global economy, growing talk of self-sufficiency, and shifting investor perceptions are the top challenges  clouding the short- and long-term business outlooks, according to the paper.

China needs to take steps to “regain a reputation for certainty, stability, and  trust” so as to sustain the growth of business optimism, and to restore its position as a leading global investment destination, the report says. It lists 171 recommendations for providing greater clarity and certainty in the Chinese market, including greater regulatory certainty on data security and other issues to help restore foreign investor confidence.

“Language around security and self-reliance needs to be balanced against the message of ‘welcome to come to China’”, Julian MacCormac, Chair of BritCham China, told journalists in Beijing last week.

As common sense goes, often it is the manner in which changes are introduced rather than the intention that can present the  greatest challenge for business.

“When something happens that isn’t necessarily explained, and where businesses are not consulted and it’s not clear where the boundaries are in terms of how a company operates, it creates uncertainty,” MacCormac said in response to a question on recent raids by Chinese authorities of foreign due diligence firms.

The paper calls for actions to simplify and clarify compliance, to support positive statements encouraging foreign investment, to ensure fair competition. It also expresses the need for inclusive consultation in policy making, and clear lines of communication to increase trust, certainty and stability.

Stability and engagement are the priorities of BritCham China this year. Its position paper welcomes the increased clarity in the narratives of British policy on China.

“Whilst  the UK-China relationship has shifted to one of strategic  competition, the relationship continues to be underpinned  by a strong bilateral trade relationship, and there remains  opportunities for collaboration in areas of mutual interest. “

The paper points out the trade-offs of the government’s de-risking strategy, too.

“Diversifying  supply takes time and resources. For such a de-risking strategy to be implemented, decisions will need to be taken on the scope, and on where the  balance between cost and diversity should rest. How this will be achieved is  not yet clear, nor is it clear what it could mean for British business in China.”

The British Business in China: Position Paper 2023 represents the views of the British Chamber of Commerce’s members across China on the regulatory challenges for companies operating in the business environment.

The cross-sector challenges addressed in this report were  drawn from the regulatory challenges identified in the  British Business in China: Sentiment Survey 2022-2023 with some adjustments in the data collection phase based  on companies’ responses.

The greatest challenges for British businesses in China identified in the survey include, in order  of severity, with hiring challenges and talent development, navigating cybersecurity and IT regulations, and formulation and enforcement of laws and regulations.