There is no bounceback in sight for EU greenfield investment into China, and the head of the bloc’s local chamber of commerce is warning that concerns over the local economy are driving European companies’ confidence in the country to historically low levels.

Foreign direct investment in China has declined since the boom years of the early 2000s when its integration into the global economy began to accelerate. The EU, which is the country’s biggest source of FDI over the past 22 years according to fDi Markets, has followed the same trajectory, with preliminary data suggesting project numbers and capital inflows from the bloc are on track for a record low in 2025.

While FDI into some sectors such as biopharma are bucking the downward trend, Jens Eskelund, who has been president of the EU Chamber of Commerce in China since 2023, sees little chance of a broader pick-up in the near term.

“There’s no doubt that the confidence level right now among European companies in China is, on average, very low by historical standards,” says Eskelund, who is also Maersk’s chief representative in China.

In the chamber’s latest annual survey of 503 of its 1,700 members published in May, 73 per cent reported that doing business in the world’s second-biggest economy became more difficult last year, a record high since the survey began in 2004.

Historical barriers to market access — such as opaque regulations, competition from state-owned enterprises and restrictions on international data transfers — are one factor.

Regulatory hurdles are increasing in some areas. National security policies are affecting more sectors, and public procurement requirements that inputs be produced and IP developed on Chinese soil are becoming more strict. The ministry of finance in December proposed a 20 per cent price advantage for goods meeting strict made-in-China criteria when bidding for government contracts.

But Eskelund says these are not the biggest deterrents to FDI in the country. “What stands out over the past few years relative to pre-Covid is that, by far, the state of the domestic economy is the dominant concern for European companies,” he says.

China’s huge domestic market and roaring economic engine in years past made contending with market access barriers more palatable. But investors are now grappling with slowing growth, weakening consumer demand, around 30 months of producer price deflation and, in the case of manufacturers, idled operations due to overcapacity.

In the chamber’s May survey, 74 per cent of respondents reported that their margins are now similar or larger outside the country. “Given all the geopolitics going on, if you suddenly have [more than] 70 per cent telling us that … the question of course becomes: ‘Why China?’,” says Eskelund. A record low 38 per cent of survey respondents plan to expand operations in China over the coming year.

Low morale among European firms mirrors the experience of their Chinese peers in the EU, whose rating of the bloc’s business environment has deteriorated over the past five years.

Further reading on Chinese FDI:

Asset-light and onshoring tactics

Despite evidence that EU firms are re-evaluating their activities in China, Eskelund is sanguine on the long-term picture, observing a high level of commitment among members to remain in the country. “We are not seeing European companies leaving China in significant numbers. On the other hand, we’re not really seeing new companies coming in on a significant scale either,” he says.

Notwithstanding the drop in greenfield FDI, Eskelund sees EU companies increasingly entering the market via joint ventures, leasing property or other arrangements whereby they minimise their capital investments. “Given geopolitical tensions, [firms are] increasingly beginning to invest in asset-light models [as alternatives to] investing in a greenfield property,” he says.

While the US-China trade war is prompting US and other foreign investors to shrink their operations in the country, more than a quarter of the chamber’s members have onshored supply chains into China over the past two years to insulate themselves from external shocks such as fast-changing tariff programmes.

Reflecting on the escalation of import levies between the two countries in April, Eskelund says “more of our members were actually impacted by the Chinese retaliatory tariffs on the US than the other way around”, revealing that “a significant number of our members are in China for the Chinese market”.