Challenges growing for European firms

European firms have seen a decline in both profitability and revenue growth in China this year as a result of the economic slowdown, increased competition and regulatory barriers, a report showed Thursday.

But despite the challenges, European companies still see China as a priority market, with few considering leaving the country, according to a survey conducted jointly by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

Only 22 percent of European companies surveyed reported notable revenue growth in China this year, down from 36 percent last year, while only 64 percent remained profitable in China, as against 73 percent in 2012.

"The most notable factor negatively affecting net profit margins is rising labor costs, but slower economic growth in both China and Europe, as well as increased competition, also had notable effects," the report said.

"The economic slowdown in China has gradually squeezed the profit margin of foreign companies," He Weiwen, co-director of the China-US-EU Study Center under the China Association of International Trade (CAIT), told the Global Times.

On Wednesday, the IMF and the Organization for Economic Co-operation and Development (OECD) joined a number of economists and institutions in cutting their forecast for China's GDP growth for the year, to 7.75 percent and 7.8 percent, respectively.

"Local players are continuing to improve in areas where foreign enterprises have long held dominance and this competitive landscape will only get tougher," said Charles-Edouard Bouee, president of Roland Berger Strategy Consultants Asia.

Meanwhile, market access and regulatory barriers in China caused members of the European Union Chamber of Commerce to lose 17.5 billion euros ($22.69 billion) in revenue in 2012, Davide Cucino, president of the chamber, said at a briefing for the release of the report.

Despite the growing challenges, 94 percent of the European companies surveyed said China is either increasingly important or as important as in 2012 to their global strategy, the report said.

Only 10 percent of companies surveyed said they were considering moving their business out of China, down from 22 percent in 2012.

"It's obvious that the situation elsewhere around the world is even worse than in China. With its large market capacity and predictable growth, foreign companies will be more reliant on the domestic market," said He from the CAIT.

"China this year should represent 40 percent of global growth in absolute terms, which makes the domestic market more important for global companies than ever before," Andre Loesekrug-Pietri, chairman and managing partner of Beijing-based equity fund A Capital, told the Global Times.

But in order to remain attractive relative to other emerging markets, China needs to accelerate its reforms to break monopolies and protect intellectual property rights as it moves toward a more "value-added" and "know-how" driven economy, said Loesekrug-Pietri.