The study, published by the European Union Chamber of Commerce in China, sheds light on the increasing challenges for foreign firms with operations in the country.
More than half of those polled -- 55 percent -- reported a business climate that is "more political over the past year", according to a recent survey conducted by the chamber, which represents more than 1,700 companies present in China.
This "general sentiment of uncertainty" has pushed three-quarters of European companies to review their exposure to China and diversify supply chains over the past two years, the survey found.
However, only 12 percent have decided to establish completely new supply chains outside China, while just one percent are severing all links with the country.
The report's highlighting of uncertainty echoes sentiments expressed in a recent American Chamber of Commerce report.
That February report noted an uptick in its members' optimism about the Chinese market but added that US-China tensions and regulatory inconsistency were among the main challenges reported.
Most of its members planned limited or no new investments into China in 2024, it said.
"Despite significant improvement compared to last year, a majority (57 percent) of companies lack confidence that China will further open its markets to foreign firms," it noted.
- Risk management -
"With the complexity and severity of the risks that businesses face having grown exponentially in recent years, companies are now having to allocate more resources to risk management and compliance activities than ever before," Wednesday's EU report said.
To navigate those risks, investing in due diligence services and detailed supplied chain reviews could become a competitive advantage, the chamber said.
But a recent crackdown on consulting firms operating in China has spooked foreign investors, while recent changes to an anti-espionage law give Beijing more power than ever to determine what information falls under the national security umbrella.
"Derisking" has emerged in recent months as a core pillar of the EU's economic policy towards China, becoming necessary after the Covid-19 pandemic and Russia's invasion of Ukraine, the report said.
The term contrasts with the more drastic approach known as "decoupling", pursued by some policymakers in the United States who aim to isolate China or cut all commercial ties with the country.
The EU views China as a "partner" but also as "an economic competitor and systemic rival", the report said.
But China's top diplomat Wang Yi criticised this position as "not factual or feasible" during a press conference this month.
"It's like a car driving towards an intersection, only to find the red, green and yellow lights on at the same time," he said.
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