Firms still see nation as key market but want more access
China's economic slowdown continues to pose a significant challenge for both Chinese and European companies and this year has seen a surge in pessimism over European investment in China, the European Union Chamber of Commerce in China (EUCCC) said Tuesday at a press conference in Beijing.
The EUCCC, in cooperation with French consultancy group Roland Berger, released its annual Business Confidence Survey 2016, which found that about 41 percent of European companies are now re-evaluating their China operations and planning to cut costs, including through layoffs.
About 56 percent of the respondents said that doing business in China has become more difficult, an increase of 5 percentage points from 2015, and European companies' willingness to invest in research and development in China has dropped from 85 percent in 2015 to 72 percent in 2016, according to the survey.
Three sectors in particular - media and publishing, machinery and IT and telecoms - said that business has become harder in China.
"European companies now need a road map. This will give them the confidence they need to commit more to China's future development in these economically challenging times," Jörg Wuttke, president of the chamber, said at the briefing.
More than 55 percent of European companies would likely increase their investment in China if the country continues to deepen its market reforms and if they are given greater market access, Wuttke noted.
European companies have been losing their competitive edge in the Chinese market in recent years due to China's declining demand for European investment, said Zhao Junjie, a research fellow at the Chinese Academy of Social Sciences.
It is understandable that many European firms are re-evaluating their China operations, "because the rising labor costs, the depreciation of the yuan and the anti-corruption measures conducted by the government make it harder for European companies to make money in the domestic market," Zhao told the Global Times on Tuesday.
China's anti-corruption activities have weighed on profits for foreign luxury firms in the Chinese market in recent years, according to media reports.
European firms have also had to deal with a growing number of rivals from the US, Japan and even China, as the domestic manufacturing industry is gradually upgrading itself, Zhao noted.
Still a vital destination
Despite the mounting pessimism, China still remains a vital destination for European firms with 47 percent reporting that they plan to expand their operations, a 39 percentage point decrease from 2013 when 86 percent said they would do so, the survey found.
"Since entering the China market in 2010, booking.com has always regarded China as one of our top priority foreign markets," said Asia-Pacific Managing Director Oliver Hua of the Netherlands-based hotel and other accommodations online booking platform.
"The initiatives taken by the Chinese government this year to ease the tax burden are allowing companies to invest more in product and service optimization and innovation. This also gives us confidence to invest continuously in China and develop more customized and innovative products specifically for the Chinese market," Hua told the Global Times Tuesday.
European investment has kept growing in the domestic market in 2016. About 28 countries from the EU set up 555 companies in China in the first four months, an increase of 5.1 percent year-on-year, according to data released Tuesday by the Ministry of Commerce (MOFCOM).
Investment from EU countries amounted to $3.5 billion during the same period, up 41.9 percent year-on-year, said MOFCOM.
China is committed to opening up more sectors to foreign investment, as well as providing them with a more open, transparent and convenient investment environment in the coming years.
"Despite slowing and L-shaped growth, China's economy could be powered for another two or three decades of high-quality expansion by measures including further pruning of overcapacity, supply-side transformation and strengthening innovation," Roland Berger CEO Charles-Edouard Bouée was quoted as saying in a press release that the EUCCC sent to the Global Times on Tuesday.
China has been advancing its economic reforms, and the country will continue to open up its market to the world, experts said.
"Opening up is a gradual process," Zhao noted, adding that the country will promote services trade in the coming years, but China will be more cautious in opening sectors such as insurance and finance.
The EU's decision in May not to grant China market economy status could also exert some negative influence on the ongoing negotiations over the China-EU bilateral investment treaty, according to experts.
