EU tells China spy and sanction laws could spook investors

European Union Trade Commissioner Valdis Dombrovskis on Monday said companies from within the bloc were increasingly questioning their future in China after recent legal and political developments.

The warning that China needs to do more to reduce the perception of risk came ahead of a high-level trade dialogue in Beijing.

What did the trade chief say?

Dombrovskis said tight security laws and a more "politicized" business environment have left European companies unsure of their legal obligations when operating in China.

As a result, he said in a speech at Beijing's Tsinghua University, some questioned their future in the world's second-largest economy.

A new foreign relations law partly aimed at beating foreign sanctions, plus a recent update to anti-espionage laws, were "great concern to our business community," Dombrovskis said.

"Their ambiguity allows too much room for interpretation. This means European companies struggle to understand their compliance obligations: a factor that significantly decreases business confidence and deters new investments in China," the commissioner warned.

"The EU and China both benefited immensely from being open to the world," he said.

"European companies still want to invest here — but only if the conditions are right."

Beijing's tacit support for its ally Russia amid the war in Ukraine was also a big factor in "reputational risk" for China, Dombrovskis warned.

Questions for both sides

Dombrovskis was expected to express concerns to Chinese Vice Premier He Lifeng at a high-level economic and trade on Monday, including EU displeasure over trade imbalances.

Chinese customs data shows the EU's trade deficit with China widened to $276.6 billion in 2022, starkly up from $208.4 billion a year earlier.

Dombrovskis' four-day trip began on Saturday. It follows an EU Chamber of Commerce report that showed business confidence was at one of its lowest levels in years.

The visit also follows Brussels' decision to investigate Beijing's electric car subsidies. The probe could see the EU impose punitive tariffs on vehicles deemed to be sold at an unfairly low price.

The Chinese commerce ministry has condemned the EU's actions as "naked protectionism." It said the measures would hurt China-EU economic and trade relations.

At the same time, China was expected to press Dombrovskis to defend the EU's de-risking strategy.

With Europe aware of the damage caused by its past dependence on Russian oil and gas, the EU is increasingly seeking to pivot away from China for some raw materials and components.