European companies are less upbeat about China’s vast market as its economy slows

Beijing (AP) — China is actively seeking foreign investment to stimulate its decelerating growth, however, this sluggishness is impeding company strategies to expand their businesses in the world’s second largest economy, as indicated by an annual survey of over 500 European companies. The slowing economy has become the primary concern for respondents to the European Chamber of Commerce in China survey, released on Friday. While China continues to be a favorable location for investment, the percentage of companies considering an expansion of their operations in the country this year has dropped to 42%, marking the lowest level ever recorded.

The prevailing challenges are further exacerbated by the subdued economic conditions and declining business confidence, as articulated by Jens Eskelund, the president of the European Chamber. “Businesses are beginning to recognize that certain pressures observed in the local market, such as intensified competition and diminished demand, may have a more enduring impact,” he conveyed to reporters earlier this week. “This is starting to influence investment decisions and strategic approaches towards local market development.” Despite government initiatives aimed at stimulating consumer expenditure, apprehension persists due to a fragile job market. Although first-quarter economic growth surpassed expectations with a 5.3% annual pace, much of this expansion stemmed from government outlays on infrastructure and investments in industrial facilities and equipment.

Substantial investment in sectors such as solar power panels and electric cars has led to heightened price competition, exerting pressure on profits. More than one-third of the survey participants reported witnessing excess production capacity within their respective industries. Fifteen percent of companies operating in China ended 2023 with financial losses. According to Eskelund, foreign enterprises prioritize growth in domestic demand over manufacturing capacity, emphasizing the significance of GDP composition rather than headline figures like a 5.3% growth rate. Close to 40% of respondents have relocated or are contemplating relocating future investments outside of China, with Southeast Asia and Europe emerging as primary beneficiaries followed by India and North America. Although nearly 60% indicated their commitment to existing investment plans for China, this figure represents a decline from the previous year’s responses.

“It is not a matter of companies giving up on China, but rather the emergence of other countries as formidable competitors to China,” stated Eskelund on Friday. The survey report indicates that “China’s appeal as a premier investment destination is waning” and cautions that unless there are improvements in the business environment, companies will seek opportunities elsewhere. The percentage of companies expressing optimism about expanding their operations in China this year has decreased to approximately one-third, down from over half in 2023. Only 15% are optimistic about profit growth. More than half anticipate reducing costs in China this year, with 26% planning to downsize their workforce — further exacerbating the strain on an already tight job market.”