Skepticism over the easing of regulatory conditions in China is increasing amid a series of government investigations of foreign companies and signs of a macroeconomic slowdown, according to a ZEW survey.
The ZEW-PwC China Economic Barometer for the third quarter shows ‘increasing uncertainty’ about business conditions in China for foreign investors, with an increase in the number of respondents who expect a slight worsening of conditions over the next six months, the report concludes.
A majority of respondents in the third-quarter survey of German executives with investments in China say they expect a decrease in inward-bound foreign investment in the country over the next six months, as compared with the second-quarter survey, when most respondents said they expected an increase over the following six months.
The decrease in expectations comes after the Chinese government launched a series of investigations into foreign firms operating in China, ranging from Qualcomm to Microsoft to Starbucks and a variety of automakers, on accusations of unfair pricing policies.
Investor optimism over the outlook in China is also waning as the country faces a slowdown in industrial output and a deceleration of gross domestic product growth, the survey shows.
‘According to the executives’ estimates, the current probability of a notable improvement in macroeconomic conditions is 30 percent as compared to 50 percent nine months ago,’ the survey states. ‘At the same time, the estimated probability of a notable deterioration of the business cycle situation has more than doubled to 26 percent.
The ZEW-PwC survey shows, though, that a majority of respondents expect an increase in mergers and acquisitions by Chinese companies operating outside of the country.
‘Some recent M&A engagements by Chinese investors, for example in the car industry and in the manufacturing sector, have raised a lot of public interest,’ says Jens-Peter Otto, partner and China expert at PwC, which collaborated in the survey. ‘These activities have underscored that Chinese companies not only aim at improving knowledge access, but also seek to develop new channels of distribution and sales in Germany.’
