Action must to restore biz confidence: EU Chamber of Commerce in China

Instead of benefitting from the strong economic rebound that many had expected, European firms operating in China found themselves facing more uncertainty, the survey report notes.

China’s structural issues—including sluggish demand, growing overcapacity and the continued challenges in the real estate sector—along with market access and regulatory barriers, continue to affect European companies, it says.

The survey was recently released in Beijing by the European Union (EU) Chamber of Commerce in China, in partnership with Munich-headquartered international management consultancy Roland Berger.

A positive finding in the survey is the notable increase in the proportion of respondents reporting market opening in their industry (45 per cent, plus 9 percentage points [pp] year on year [YoY]). However, 68 per cent reported that business became more difficult, the highest percentage on record.

Fifty-five per cent of respondents ranked China’s economic slowdown among the top business challenges—a 19-pp increase YoY.

Fifty-eight per cent missed business opportunities as a result of market access or regulatory barriers.

Forty-four per cent are pessimistic about profitability over the next two years, the highest level on record; and the proportion of respondents positive about their growth prospects dropped by a staggering 23 pp YoY.

The strategies companies are employing to adapt to the business environment have the potential to set China into a negative cycle that would add to the country’s economic woes, the report cautioned.

Fifty-two per cent of respondents plan to cut costs, with 26 per cent of them doing so by reducing headcount.

Thirteen per cent have already shifted, or taken the decision to shift, existing investments out of China, although 21 per cent have indicated they will be onshoring more of their supply chain.

Forty-two per cent are considering expanding their operations in China this year—the lowest level on record.

“There are worrying signs that some European companies are either siloing operations or scaling down their ambitions in China as the challenges they face start to outweigh the benefits of being here,” said Jens Eskelund, chamber president, in a release.

“While the Chinese Government is frequently signalling its intent to improve the business environment, we now need to see concrete action to restore investor confidence,” he added.

“European companies are confronted by growing uncertainties in China, in large part due to economic volatility and less predictable policy direction,” said Denis Depoux, global managing director of Roland Berger.

“While volatility can be managed, the lack of predictability may reduce the appeal of the Chinese market,” he added.

Fibre2Fashion News Desk (DS)