Leaving China, long-time EU trade group chief says investors remain keen, but with more reservations

“It has been the most amazing journey,” the German executive spoke of his four decades in China, witnessing the country’s emergence from the dark days of the Cultural Revolution and growing to become the world’s second-largest economy.

Wuttke, who grew up in a small village in southwest Germany, said his interest in China was first triggered by the stark contrast in the perceptions of the country within his family: his father was a strong reader of Confucius, while his older brother used to wave Mao Zedong’s “little red book”.

“I think China was just the ultimate prize. Somehow I managed to get there. I fell in love with the country, the food, the people, and ever since then, I’ve been hooked,” he said. “I was privileged to basically witness the whole story of growing with a marketplace. Of course, now it is a market which has a lot of challenges and unknown factors.”

Representing the European business community in China for the past two decades, Wuttke co-founded the German Chamber of Commerce in 1999 and the EU chamber in 2000, both of which he chaired for years.

The best time for foreign business access to China – both the market and Beijing’s top leadership – was after the World Trade Organization accession in 2001, when reform-minded Zhu Rongji was premier, and before the 2008 Beijing Olympics, Wuttke recalled.

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Zhu’s five-year tenure, starting in 1998, was defined by efforts to liberalise the country’s economic system: bolstering the private sector, trimming government bureaucracies and revamping the inefficient state sector through massive lay-offs and factory closures.

While those challenges played out, Wuttke said, investors from overseas had “incredible access to the top leadership”, who met with foreign chief executives “left, right and centre”.

In the past decade, he added, such candid interactions have been largely reduced to staged engagement: foreign dignitaries refrain from speaking up in order not to touch on difficult topics and Chinese leadership resort to political language.

The Covid-19 pandemic further exacerbated the trend. A strong critic of Beijing’s zero-Covid policy, which Beijing started to ease in December 2022, Wuttke said it has been the best example of how ideology is trumping the economy in China.

In contrast, local government officials in China have remained very engaging with foreign investors, since job creation and tax gain are always their top priorities, Wuttke said.

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China-EU summit: Xi Jinping calls on EU leaders to work together and strengthen mutual trust

China-EU summit: Xi Jinping calls on EU leaders to work together and strengthen mutual trust

“There is a real disconnection between local governments embracing [foreign companies] and basically Beijing is riding a more self-reliant storyline. Sometimes I really hate to tell them ‘sorry, I would like to do this, but Beijing says no’.”

In the absence of a sustained post-pandemic recovery exacerbated by a property market downturn and heightening geopolitical tensions, swooning Chinese stock markets and investor outflows have prompted Beijing to launch a charm offensive to woo foreign capital back.

In January, Chinese Premier Li Qiang told the World Economic Forum in Davos that the country is committed to creating “favourable conditions” for foreign companies, including a total lift of restriction on foreign investment in the manufacturing sector.

“We hear the good words, but at the same time, we are businesspeople, we are looking at issues on the ground. Access doesn’t really get better,” Wuttke said.

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In the third quarter of 2023, direct investment liabilities – a broad measure of foreign direct investment (FDI) that includes foreign companies’ retained earnings in China – ran a deficit of US$11.8 billion, the first since the government started collecting such data in 1998.

One reason for the FDI decline is overcapacity, Wuttke said. At China’s annual tone-setting central economic work conference in December, top leaders in Beijing acknowledged that “overcapacity in some industries” was one of the major economic challenges to tackle in 2024.

“There’s a lot of overcapacity in China. And so where would you invest? You might just invest more in capacities which are already plagued and hampered by overcapacity,” Wuttke noted.

“And then people make products but make no money. And that’s why a lot of money is leaving China.”

Still, the Chinese market remains attractive for foreign businesses, due to the sheer size of its market and technology gains – especially the green energy sector, in which foreign businesses can learn, compete and close the gap, he said.

Despite China’s slump, economists still expect it to remain the world’s second-largest economy for the foreseeable future, though fewer believe it will surpass the US to become No 1 any time soon, as many had before the downturn in domestic markets.

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The issue remains potent: just last week, BASF announced it was divesting from two joint ventures in Xinjiang, following reports that its business partners were involved in human rights abuses.

Wuttke said while decoupling is untenable, the EU’s de-risking policy – to limit dependency on China – is “essential”.

“But these are anomalies in our trade and investment, single-digit items, not the majority of things,” he said.

As he prepares to bid farewell to the country he first arrived in 1982, it is not yet time for retirement; rather, he is ready to share his China experience when his new life begins in Washington.

“I’m going to leave China in July. But China’s not going to leave me. I will be continuously advising on China.”