The business environment in China is increasingly hostile for European

companies operating there and the government’s failure to deliver on

promises to open up the market means many EU firms are planning to

scale back operations.

At a news briefing to launch the European Chamber’s annual Business

Confidence Survey, the lobby group's president Joerg Wuttke said 56

per cent of respondents reported that doing business in China has

become more difficult, a five-point increase from last year.

“The membership sees a stronger disconnect between the commitments and

actual actions to move forward and that is possibly adding to the

pessimism. The outlook is pronounced more pessimistic,” said Wuttke.

The EU and China have daily trade of €1.5 billion but Wuttke said

that European companies needed a roadmap if they were to have the

confidence to commit to investing in China going forward, especially

as growth slowed in the world’s second biggest economy.

Against the background of a slowing economy, 41 per cent of European

firms are planning cost cuts, including staff reductions a record high

for the survey, which had more than 500 respondents.

Some 57 per cent of European firms perceive that foreign companies are

treated unfavourably compared to their domestic counterparts.

“What leads to this more pronounced pessimism are unfulfilled

promises. After years of talking about level playing fields, the

sentiment is the same,” said Wuttke.

He gave environmental laws as an example, which is much tougher than

in the EU in many cases.

“You can see how the implementation is being done. Far less on the

State-owned Enterprises, far less on the private enterprises and quite

stringent on European companies,” said Wuttke.

The survey showed that 58 per cent of respondents believed the recent

tightening of Internet controls and access restrictions was having a

negative impact on their business, a 17-point rise from 2015.

“Money talks. Our decisions are based on the difficulties that are

facing us, for example, on things like the speed of the Internet,”

said Wuttke.

“Looking at the policies or reforms that have yet to be implemented,

European businesses are very keen to have some good news.”

Nearly half (47 per cent) of European companies intend to expand

operations in China, which is a drop of 39 points on 2013, when 86 per

cent of European companies were planning to that. And a clear majority

said they would increase their investment in China if barriers were

removed.

“We have noted that supply side reform is being discussed more, and

they talk about layoffs, and also the financial-social net that is

very important, so we see some good news but we are worried that it is

only rhetoric,” said Wuttke.

Protecting intellectual property remained a struggle in China, and

things are getting worse. Most of the cases are Chinese companies

against Chinese companies, which Wuttke said did not augur well for

China’s efforts to boost its innovation and bring its manufacturing

industry up the value chain.

“Europe is only really a niche player, but it sucks all the oxygen out

of innovation in China,” said Wuttke.

Some 70 per cent of European businesses surveyed do not feel more

welcome in China than they did 10 years ago

“So, what do we do with all this? Basically, we are not doing badly

wherever we can operate, but the pessimism sinks in because we think

there is rhetoric, there is talk, but little walk,” said Wuttke.

“When you ask about the outlook on growth, optimism is definitely a

shrinking entity. It’s even pronounced more strongly in the

profitability outlook. It’s the first time basically that pessimists

are outnumbering optimists,” said Wuttke.