European firms operating in China are encountering challenges in maintaining profitability due to decelerating growth and rising pressures of overcapacity, as outlined in a survey released on Friday by the EU Chamber of Commerce in China.
According to the head of the chapter, Carlo D’Andrea, companies in the city are facing delays in receiving payments and encountering difficulties in contract enforcement, when compared to the previous year.
The recent slowdown in Chinese economic growth, attributed to geopolitical tensions and a decline in the real estate sector which is closely linked to local government finances, has impacted the financial performance of European companies in the region.
The survey revealed that only 30% of respondents reported higher profit margins in China compared to their global average, marking an eight-year low. This number was similar to the situation in 2016, where 24% of respondents mentioned better profit margins in China than globally.
EU Chamber President Jens Eskelund highlighted similarities between the current slowdown and the economic downturn in 2015, which was triggered by a crash in the Chinese stock market and a real estate market slowdown. However, there are uncertainties regarding the duration and severity of the current economic slowdown.
The survey, which included 529 respondents and was carried out from mid-January to early February, addressed challenges faced by members in repatriating dividends to their headquarters. While the majority reported no issues, 4% indicated difficulties in transferring dividends, and around one-fourth experienced some constraints or delays.
China’s economy has significantly expanded since 2015 and 2016, and trade tensions with the U.S. have escalated, prompting Beijing to focus on boosting manufacturing to enhance technological self-sufficiency.
Meanwhile, the Chinese National Bureau of Statistics is set to unveil data on fixed asset investment, industrial production, and retail sales for April next Friday.
