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China’s revised anti-espionage and data laws threaten to further decouple from Europe by making it harder for foreign companies to invest, a European business lobby group has said.

The comments by BusinessEurope, which represents commercial lobby groups from across the EU, come after China last week sought to allay growing concerns about the foreign investment environment by directing local authorities in a memo to stop discriminatory practices.

BusinessEurope deputy director general Luisa Santos warned that new laws restricting the flow of data from China, coupled with tough penalties for those charged under amended anti-espionage legislation, are worrying foreign investors.

“If people are worried that you could go to jail in China” if you share data with Europe, “then you have to make some very difficult decisions, and that could effectively lead to the decoupling that we all want to avoid,” he said Santos in a statement interview in Beijing.

Foreign chambers of commerce have complained that China’s new laws on cross-border data flows are too vague and make it difficult for multinational companies to carry out normal business and research activities related to their international operations.

The European Union Chamber of Commerce in China recently released a report listing 1,058 recommendations to Chinese authorities on data laws and other practices that they say lead to unequal treatment of foreign companies in the country.

“The main goal is to show that we still care. . . China, along with the US, is our most important trading partner,” Santos said of her visit to Beijing. “At the same time, the relationship faces many challenges.”

She said regulations in Europe requiring greater due diligence on issues such as forced labor meant companies needed to improve compliance and traceability of their supply chain.

But China is cracking down on due diligence companies, arresting local employees of the US company Mintz and investigating others, such as the expert network CapVision, which makes compliance with the regulations more difficult.

Santos said that if companies struggle with supply chain traceability requirements, “or if this information is not correct or positive, there is a very high risk of withdrawing from the Chinese market.”

Increasingly, companies would begin to pursue an “in China for the Chinese market” strategy, separating their local operations from overseas networks and investing in new production capacity for export.

She said other European business concerns included China’s stance on the Ukraine war, its insistence on maintaining developing country status in the WTO, which gives it preferential treatment, and its slow issuance of visas.

China’s Ministry of Commerce has tried to address the concerns of foreign chambers of commerce. In a memo issued last week, it ordered the “cleanup” of regulations that discriminated against foreign investors.

These included measures such as requiring companies to undergo a longer process to apply for permits, eliminating subsidies for foreign brands, and barring participation in local government tenders and procurements.

Commenting on the memo, the European Chamber said it “looks forward to publishing a timetable and more specific implementation guidelines”, while the British Chamber’s chair, Julian Fisher, said the announcement would “help build confidence among our members in the Chinese to strengthen the market”.

But AmCham China president Michael Hart said getting companies to invest again was “not like flipping a switch” after three years of Covid restrictions, geopolitical tensions and challenging US-China relations .

“We’ll have to see what action comes next and then we’ll see whether companies gain enough confidence to approve new investments,” Hart said.

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