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Report: Half of EU firms in China say 'golden age' is over

By: Steve Toloken

May 29, 2014

The leading European business group in China said in a May 29 report that its companies are scaling back investment plans as China’s economy slows and challenges like rising labor costs, regulatory issues and market access become more entrenched.

“The Chinese economic slowdown and tougher business conditions are starting to bite and financial performances are getting much tighter,” said Jörg Wuttke, president of the Beijing-based European Union Chamber of Commerce in China. “Half of European companies already believe that the ‘golden age’ for multinational companies in China is over.”

The chamber released its annual business confidence survey, based on input from 550 EU chamber companies, on May 29.

The report said the huge size of China’s market will still offer substantial opportunities and keep it as a strategic location for most of its member companies, but the trade association pointed to a “new sober reality” among executives.

For the first time in the survey’s 11-year history, companies reported that profit margins in China were lower than their global average, the chamber said.

Implementation of meaningful reforms like better market access and stronger rule of law could lead European firms to increase their investments, the report said.

“Most European companies feel that domestic Chinese companies continue to receive favorable treatment,” the chamber said. “Two analogous issues — the unpredictable legislative environment and the discretionary enforcement of regulations — are identified as the two most significant regulatory challenges.”

There was a sharp drop in the percentage of European firms considering mergers and acquisitions in China in short term, dropping from 41 percent last year to 17 percent this year. And it said that 21 percent of companies consider China their top investment destination, down from 33 percent in 2012.

But some sectors reported much better results.

The auto industry and automotive component manufacturing industry reported the highest growth, with 79 percent of companies seeing revenues increase. Likewise, the medical device and machinery sectors reported better results, with 76 percent and 64 percent of companies reporting higher revenues.

Chemical companies and manufacturers in the auto industry were most likely to expand their operations, with more than 78 percent saying they would do so. By contrast, 57 percent of all companies planned to expand, down from 86 percent in 2013, the chamber said.