European companies are less upbeat about China’s vast market as its economy slows

An annual survey of more than 500 European companies has shown that slowing growth in China is affecting companies’ plans to grow their business in the world’s second-largest economy.

BEIJING – China is actively seeking foreign investment to boost its slowing growth, but the severe slowdown is affecting companies’ plans to grow their businesses in the world’s second-largest economy, an annual survey of more than 500 European companies showed.

The chamber said in its business confidence survey: “The business outlook is the most pessimistic yet, with companies’ expectations for growth and profitability taking a hit, and concerns about competition growing.”

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. Others, including the American Chamber in China, have expressed similar concerns.

These long-standing issues are now being exacerbated by the weak economy, eroding business confidence, said Jens Eskilund, president of the European Chamber.

“Businesses are starting to realize that some of these pressures that we’ve seen in the domestic market, whether it’s competition, whether it’s decreased demand, are perhaps taking on a more permanent nature,” he told reporters earlier this week. “This is something that is starting to influence investment decisions and the way they think about developing the local market.”

The government is launching programs to boost consumer spending, but confidence remains low due to the weak labor market. Economic growth came at a faster-than-expected annual pace of 5.3% in the first three months of the year, but most of the GDP growth came from government spending on infrastructure and investment in factories and equipment.

Huge investment in industries such as solar panels and electric cars has created intense price competition, cutting into profits. More than a third of survey participants said they had noticed an increase in production capacity in their industries. For 15% of companies, their operations in China ended 2023 in the red. Foreign companies need growth in domestic demand, not manufacturing capacity, Eskelund said.

“What matters to foreign companies is not necessarily the headline GDP number — 5.3%, whatever — but the composition of GDP,” he said.

Nearly 40% of companies said they had moved or were considering moving future investments out of China. Southeast Asia and Europe are the biggest beneficiaries, followed by India and North America. Nearly 60% of them said they were committed to their investment plans for China, but that was down from last year.

About a third of companies were optimistic about growing their business this year, down from 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 staff – which the report said would “increase pressure on an already tense labor market”.

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