China still an investment hotspot for European firms despite rising geopolitical tensions

Investment from the European Union into China was up 15 per cent in the first half of 2022 compared to a year ago, according to data from Rhodium Group

Although investment has shown some weakness due to souring relations recently, European firms are not pulling out of China as some had feared

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BMW AG opened a multibillion-dollar factory extension in Shenyang earlier this year. Photo: AFP

Published: 1:02pm, 18 Aug 2022

European investment in China is holding up for now despite deteriorating political relations between the two trading partners, with businesses looking for ways to work around any decoupling threat.

Investment from the European Union into China was up 15 per cent in the first half of 2022 compared to a year ago, according to data from Rhodium Group, helped by BMW AG’s purchase of a controlling stake in its car-making joint-venture in the first quarter.

Although investment has shown some weakness more recently, European firms are not pulling out of China as some had feared. In fact, rising geopolitical tensions may even be encouraging businesses to expand local production chains, analysts say.

“We’re not seeing any large exodus yet and companies are still working on completing already planned projects,” said Mark Witzke, a research analyst at Rhodium Group.

“At least for European companies, it’s mostly the larger players that already have significant interests in China continuing their planned investments, albeit with some delays” due to lockdowns to curb Covid infections.

Relations between Europe and China have been deteriorating for more than a year, with Beijing’s refusal to condemn Russia’s invasion of Ukraine only worsening political ties. A bilateral investment treaty with Brussels was frozen last year, adding another layer of risk. On top of that, punishing lockdowns across China this year pushed the economy into contraction and hit business profits.

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