European Chamber of Commerce in China publishes latest Business Survey

Europe - China business

On June 7, the European Chamber of Commerce in China has published its latest Business Confidence Survey, produced by Roland Berger.


The purpose of the European Chamber’s European Business in China Business Confidence Survey is to take an annual snapshot of European companies’ successes and challenges in China. Published since 2004, the survey has enabled the European Chamber to build a rich data set to serve as a broad indicator for how European companies judge the business environment in China, both now and in the future.


Executive Summary

China’s economic slowdown continues to pose a significant challenge to both Chinese and European companies. However, a business environment that is increasingly hostile combined with a playing field that is perpetually tilted in favour of domestic enterprises means the effects of the slowdown are intensified for European business. Beijing’s failure to deliver on promises that foreign-invested enterprises (FIEs) will enjoy a more open, competitive market has triggered a fresh wave of pessimism, with 41% of European companies now re-evaluating their China operations and planning to cut costs, including through headcount reduction.


More than half of the respondents in the Business Confidence Survey 2016 report that doing business in China is becoming more difficult year-on-year. Entrenched anti-competitive policies and a failure to enact tangible reforms in crucial areas such as rule of law, eliminating local protectionism, removing market access barriers, reigning in overcapacity and tackling high levels of domestic debt are just some of the key reasons. To date, the symbolism of the Third Plenum’s Decision has trumped substance.


Pessimism about the business outlook for China operations of European companies has reached an all-time high, with 31% of respondents bearish about their profitability – an eight-point increase over 2015 figures. Another 15% of respondents report concern about company growth, which is seven percentage points higher than last year. Anxiety over the increasing difficulties of conducting business in China is particularly pronounced in the information technology and telecommunications, machinery and chemicals sectors. Additional market access barriers account for the first two sectors, whereas as a continued worsening of overcapacity accounts for the latter.


After 35 years of dynamic economic development it is natural that the pace of growth should ease off in China, a process that is already well underway. Despite this, China remains a significant investment destination for European companies with 47% reporting that they plan to expand their operations. However, it is noteworthy that this represents a nine-point decrease from 2015. Furthermore, only three years ago a staggering 86% of European companies were intending to expand operations, which provides an even more sobering perspective.


In fact, European investment in China is down about 9% overall from 2014, to EUR 9.3 billion in 2015, suggesting that China is losing its privileged position in the investment portfolios of many European companies. This contrasts starkly with the staggering EUR 20 billion that China invested in Europe in 2015, a 44% leap from 2014. However, while the slowdown in economic growth is the primary reason that respondents are scaling back their investment plans, concerns over the nation’s growing debt, slowing exports and dwindling returns on investment—particularly in sectors burdened by overcapacity make it clear that this is by no means the only reason.


As China looks to ease the transition of its economic model towards one based on qualitative growth, the government has repeatedly promised to enact reforms aimed at shifting the market to the heart of the nation’s economy. But here too European firms have been disappointed with the resolve that has been demonstrated. In fact, it often seems that Beijing is moving in the opposite direction, promulgating vaguely-worded, security-related laws and strangling Internet access to the point of harming domestic as well as international businesses.


To read the Business Survey, please click here.


Source: European Chamber of Commerce China



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