European firms spooked by slowing China growth - report

Thursday 29 May 2014 08.29
The Business Confidence Survey 2014 report showed firms have become increasingly pessimistic as the Chinese economy slows
The Business Confidence Survey 2014 report showed firms have become increasingly pessimistic as the Chinese economy slows

European businesses fear the "good times are over" in China, a survey showed today.

Businesses cited the country's slowing economic growth, rising labour costs, falling profits, regulatory hurdles and pollution among their concerns.

The Business Confidence Survey 2014 report, released by the European Chamber business group and consultancy Roland Berger, showed firms have become increasingly pessimistic as the economy slows.

"Business is already tough and it is getting tougher," the report said. "This is leading many to the conclusion that the good times are over."

The survey comes as China's once double-digit annual growth rates have eased in recent years, sitting in the mid-7% range as its leaders try to pivot the economy away from relying on exports and big-ticket public investments.

But while top officials say they welcome the weaker rates as part the drive to a more sustainable growth model, the report said the slowdown "surpassed rising labour costs as the number one perceived challenge for future business in China".

The survey, based on responses from 552 European businesses in China, found that 68% of large companies with more than 1,000 employees said doing business had become harder over the past two years.

"A new sober reality is developing," the survey said, citing steadily declining financial performance, downwardly revised business plans and regulatory obstacles among reasons.

"The companies noted that margins are tight, but for the first time in the history of this survey margins have been in China on average lower than it was on their global company average profitability," it added.

China's notoriously bad air quality was cited by 68% of respondents as the top challenge in attracting expatriate talent, while 64% said it was the biggest challenge in retaining such personnel.

The overall situation is pushing companies to consider opportunities elsewhere, "with half the European companies routinely reviewing investment opportunities in other Asian countries", the survey said.

However, despite the pessimistic tone, the report also acknowledged that even a challenging Chinese business environment still presents irresistible opportunities.

"European companies will continue to regard the Chinese marketplace as strategically important," the survey found, as its "sheer size means that they will continue to generate a high proportion of their global revenues" there.