GUANGZHOU, CHINA (June 1, 12:25 p.m. ET) — A growing number of European firms are considering shifting investments from China to other emerging markets, although the country remains a top investment destination and an increasingly important strategic market, according to a new report from Europe's largest business group in China.
The European Union Chamber of Commerce in China said in its May 29 annual survey of business conditions that rising costs and regulatory challenges are the biggest issues facing its companies in China, and said that 22 percent of them were considering shifting investment away from the country. It called that a “significant” percentage.
“There are indications from this survey that as reform continues to stall and costs rise, a previously reliable stream of FDI may slow and planned investments may be shifted to other emerging markets,” said Davide Cucino, president of the Beijing-based European Chamber.
“We are happy to report that European companies are continuing to invest and create jobs in China, but the lack of reform of the regulatory environment is worrying and has a disproportionate impact on foreign business as well as on the domestic private sector,” he said.
Still, the chamber's report said the European firms continue to put money in China. A little more than 60 percent of them plan new investments there, more than half are looking at entering new provinces, and almost three-fourths of them plan to hire more staff in the next two years.
As China's economy has grown quickly amid problems in Europe — China contributed the most in real terms to global growth for the sixth consecutive year — the country has become a more important market, the chamber said.
Chinese operations now make up 10 percent of worldwide revenue for half of the survey respondents, up 50 percent from 2009.
But the report also hit at what it called “growing frustration that the reforms of the 12th Five-Year Plan are not being carried out” and it repeated a Chamber complaint that China's regulatory environment “will continue to discriminate against foreign companies.”
The survey was based on responses from 557 companies, given in a two-week period in February.