The difficulty of European companies in China to make money

This article was originally published in English

China actively seeks investment abroad to boost its slow growth, but that same sluggishness is weighing on companies’ plans to grow their businesses in the world’s second largest economy, according to an annual survey in which more than 500 European companies participate.

The slowdown in the economy is now the main worry within the companies that take part in the report carried out by the European Union Chamber of Commerce in China, published this Friday. China continues to occupy a prominent place among places to invest, but the percentage of companies considering expanding their operations in the ‘Asian giant’ this year fell to 42%, the lowest level ever recorded.

“Business perspectives are the most pessimists to date: companies’ growth and profitability expectations have been affected, and concerns about competition have intensified,” says the Chamber of Commerce in its survey on business confidence.

The economic concerns add to long-standing complaints about regulations and practices that companies say favor their Chinese competitors or are unclear, creating uncertainty for companies and their employees. Other bodies, such as the American Chamber of Commerce in China, have expressed similar concerns.

According to Jens Eskelund, president of the EU Chamber of Commerce, these old problems are now joined by the weakness of the economy, which erodes the confidence of companies.

“Companies are starting to realize that some of these pressures that we’ve seen in the local market, whether it’s competition or low demand“They are becoming more permanent,” Jens Eskelund told reporters earlier this week. “That is something that is starting to influence investment decisions and the way we approach the development of the local market,” he added.

The Government is launching programs to promote spent of consumers, but confidence remains low due to the weakness of the labor market. In the first three months of the year, economic growth stood at 5.3% annually, faster than expected, but much of the increase in GDP was due to public spending on infrastructure, and investment in factories and equipment.

Massive investment in sectors such as solar panels and electric cars has generated intense price competition that has reduced prices. benefits. More than a third of respondents say they have seen excess capacity in their sector. For 15% of companies, their operations in China ended 2023 in the ‘red’. According to Eskelund, foreign companies need domestic demand growth, not manufacturing capacity.

“What is important for foreign companies is not necessarily a figure of GDP5.3% or whatever, but the composition of the GDP,” he says.

Nearly 40% of the companies indicated that they had transferred or were considering transferring their future investments outside China. Southeast Asia and Europe are the biggest beneficiaries, followed by India and North America. Almost 60% said they maintain their investment plans in China, but this figure is lower than last year.

“China’s attractiveness as a major investment destination is fading,” says a Chamber report on the survey. “Without significant improvements in the business environment, companies will continue to look for opportunities in other markets that they consider more reliable, predictable and transparent,” he says.

About a third of the companies showed optimistic about the growth of their business this year, compared to more than half in 2023, and only 15% were optimistic about profit growth.

More than half expect to cut costs in China this year, including 26% who plan to reduce the size of their workforce. Measures that, according to the report, “will further increase pressure on a labor market that is accumulating a lot of tension.”