European Firms in China Face Growing Challenges as Economy Slows
European businesses operating in China are encountering increasing difficulties, as the country’s economic growth slows and overcapacity issues mount, revealed a survey released by the EU Chamber of Commerce in China.
Profit Margins Drop, Enforcement Woes
In major metropolises like Shanghai, businesses have reported delays in payments, hindering contract enforcement. State-owned enterprises have resorted to postponing payments, effectively obtaining “de facto loans” from companies, particularly small and medium-sized businesses.
Economic Slump Weighs Down Business
China’s economic slowdown, fueled by geopolitical tensions and a slump in the real estate sector, has dragged down the economy. Only 30% of EU Chamber survey respondents reported profit margins higher than their global averages, reaching an eight-year low.
Transfer of Dividends Faces Obstacles
The survey also raised concerns about difficulties in transferring dividends back to European headquarters. While the majority reported no issues, a significant number (one-fourth) cited delays or difficulties.
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Companies are beginning to realize some of these pressures are taking on a more permanent nature.Jens EskelundEU Chamber of Commerce in China, President
Overcapacity Threatens Profitability
China’s emphasis on manufacturing has led to concerns of overproduction and reduced profit margins. More than one-third of EU Chamber survey respondents reported observing overcapacity in their industries, with another 10% anticipating it in the near future.
Overcapacity has resulted in price drops, hurting both European and Chinese companies alike. The civil engineering, construction, and automotive industries have been particularly affected.
Targeted Market Openings
Despite the challenges, Chinese authorities have made efforts to attract foreign investment. Beijing has relaxed visa restrictions for certain EU countries, allowing easier travel for executives. Tax exemption policies have also been extended to encourage international staff and their families to stay in China.
Industries such as cosmetics and food and beverage have benefited from China’s market opening efforts. A record 39% of respondents in these sectors reported that their local markets were fully open.
Continuing Skepticism and Concerns
Despite the government’s efforts, EU Chamber and other business organizations highlight the need for China to implement its 24 measures to improve the foreign business environment.
The survey revealed a record number of respondents expressing skepticism about their growth potential in China and intensified competition. Concerns about profitability, regulatory barriers, and missed opportunities due to regulations have also reached record highs.
“Companies are beginning to realize the pressures in the Chinese market are taking on a more permanent nature,” said EU Chamber President Jens Eskelund. “This is impacting investment decisions and the way they think about developing their local market.”
