European companies fear 'arbitrary punishment' amid China-Europe tensions

European companies in China are increasingly afraid of "arbitrary punishment" amid a more politicized business environment, a European business industry group said on Thursday.

The annual report of the European Chamber of Commerce in China also highlighted concerns about travel restrictions imposed on foreign workers because of the coronavirus pandemic and the exclusion of foreign businesses from key sectors of the economy.

"Companies are left navigating a political minefield during a health crisis of truly overwhelming proportions," chamber president Joerg Wuttke said in comments attached to the report, which draws on contributions from working groups, surveys and comments from its more than 1,700 members.

The report warned that the risk of deteriorating relations between China and Europe - over issues like Beijing's treatment of the Uighur Muslim minority and new national security legislation for Hong Kong - could seriously impact European companies doing business in China.

European companies now "have even more reason to believe that they could become victims of arbitrary punishment" due to their home country governments' actions against China, the report said.

For live updates on the coronavirus outbreak, click here

The report cited China's imposition in May of a more than 80 per cent tariff on Australian barley imports, effectively stopping a billion-dollar trade in a move widely viewed as linked to escalating political tensions between Canberra and Beijing.

Already inflamed by Australia's allegations that China was meddling in its domestic affairs, relations worsened when Prime Minister Scott Morrison called for an independent inquiry into the origins of Covid-19.

Travel restrictions imposed amid the pandemic have also left many European company employees stranded outside of China, and discrimination against foreigners was ignored by Chinese officials, the said.

"Chamber members cannot help wondering if these actions and inactions are indicative of a broader mindset that while foreign capital and technology are desired in China, foreigners themselves are not," it said.

The report also cites a continued lack of significant opening of China's market, with bureaucratic obstacles to full entry in sectors like banking and insurance, cutting off foreign companies from gaining market share.

"Worryingly, there now seems to be a growing list of sectors that either restrict foreign investment or in which support is provided to China's national champions to the extent that it squeezes out any potential European competition," it said.

Renewables, telecoms, and other high-tech industries with strong growth potential are tightening up to foreign investors, the report said.

China has sent both its foreign minister and top diplomat to Europe in recent weeks, in efforts to bolster ties amid increasing tensions with the United States.