Pessimism swells on doing business in China, European firms say

European firms in China are the most pessimistic about growth prospects since 2011, a new survey shows, underscoring the challenges of doing business in the world’s second-largest economy despite recent government efforts to address some complaints. Some 29% of respondents were downbeat on the outlook for their sector over the next two years, according to an annual report by the European Union Chamber of Commerce in China published today. The survey conducted between January and February with 503 respondents also found that 49% of businesses expressed pessimism about their profitability. Geopolitical crossfire takes its toll Firms say China’s economic slowdown is the most prominent issue going forward, with 71% of businesses citing it as one of their top three challenges. That was followed by U.S.-China tensions and geopolitical risks. In recent weeks, the Chinese government has offered European delegations rare, unscripted access to senior policymakers and showered them with assurances of improved conditions. Still, skepticism remains ingrained among European trade officials. Jorge Toledo, the EU’s top envoy to China, has repeatedly voiced dissatisfaction with Beijing’s treatment of the bloc and European firms. Top trade officials from the EU and China are planning to meet again in early June, adding to signs that both sides are stepping up engagement as they try to push back against tariff pressure from U.S. President Donald Trump. A Bloomberg survey of economists expects growth of 4.5% this year after the U.S. and China reached a temporary truce in the trade war — well below the target of around 5% set by policymakers in Beijing. Economists also expect deflationary pressure to worsen as the domestic economy struggles with a prolonged property slump that has suppressed demand and industries fight price wars that may worsen. The European Chamber survey found signs that the deteriorating sentiment was leading companies to shift investment elsewhere. A record low 38% of respondents said they planned on expanding their businesses in China over the coming year, down 4 percentage points from last year. The great decoupling: Operations split A rising number of respondents indicated they shifted current or future operations to other countries, often in Europe or Southeast Asia. The report highlighted moves by European companies to separate their Chinese operations from the rest of the world to comply with regulatory or localization requirements. “This ‘decoupling’ that is taking place between company headquarters and China entities is leading to a slowdown in overall operations and difficulties capitalizing on new investment plans, precipitating a negative cycle of disengagement,” the report said.

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Pessimism swells on doing business in China, European firms say