European Businesses Less Sure About China's Market Amidst Economic Slowdown.

Published on 11 May 2024, by Marine Beaumont | Paris, France.

European businesses are feeling less positive about China’s extensive market due to its slowing economy. While China is actively seeking foreign investment to boost its growth, this slowdown is dampening companies' intentions to expand within the world’s second-largest economy, according to an annual survey of over 500 European companies.

The survey, conducted by the European Chamber of Commerce in China, highlights the predominant concern of the slowing economy among respondents. Although China remains an attractive investment destination, the percentage of companies considering expanding their operations in the country this year dropped to 42%, the lowest on record.

The chamber reported that business sentiment is currently at its most pessimistic, with companies expressing concerns about growth, profitability, and heightened competition. These economic worries compound long-standing grievances regarding regulations favoring Chinese competitors and creating uncertainty for foreign companies and their employees.

Jens Eskelund, the chamber's president, noted that economic pressures such as competition and low demand are increasingly seen as permanent, impacting investment decisions in the local market.

Despite government efforts to stimulate consumer spending, confidence remains low due to a weak job market. While GDP growth exceeded expectations in the first quarter, much of it was fueled by government spending rather than organic demand.

Intense price competition, particularly in industries like solar panels and electric cars, has squeezed profits, with over a third of surveyed companies noting overcapacity in their sectors. Additionally, 15% of companies reported losses in their China operations for 2023.

Eskelund emphasized that foreign companies prioritize domestic demand over manufacturing capacity and highlighted the importance of GDP composition.

A significant portion of companies are considering or have already moved investments out of China, with Southeast Asia and Europe emerging as preferred destinations. While the majority are maintaining their investment plans for China, the proportion has decreased from previous years.

The survey underscores a fading allure of China as a top investment destination and warns of companies shifting their focus elsewhere without improvements in the business environment. Optimism about expanding in China and profit growth has declined, with over half of respondents planning cost reductions, including staff reductions, which could exacerbate pressure on the job market.