European companies operating in China are expressing skepticism about the government’s ability to effectively stimulate demand in the struggling economy or implement promised reforms, leading to a decreased willingness to invest in the country, according to a statement made by a European business advocacy group on Wednesday.
The European Union Chamber of Commerce in China noted in its latest Position Paper that many of its 1,700+ member firms are starting to accept that the challenges they encounter may be enduring issues rather than temporary hurdles typical of an emerging market.
Jens Eskelund, the chamber’s president, emphasized that a critical juncture has been reached, with investors closely evaluating their operations in China as the obstacles of conducting business begin to outweigh the benefits.
In 2023, European direct investments in China plummeted by 29% to 6.4 billion euros ($7.06 billion) from the preceding year, as reported by data from the European Commission. The chamber highlighted that profit margins in China had declined for approximately two-thirds of its members to levels on par with or lower than the global average.
The report underscored the challenges faced by European firms, including unfair subsidies received by Chinese competitors, a complicated business atmosphere, President Xi Jinping’s strong emphasis on national security, and persistent hurdles related to market access and regulations. However, the primary concern remains the deceleration of China’s economy.
Amidst signals from policymakers about directing stimulus towards households instead of infrastructure after a difficult second quarter, European companies are experiencing fatigue towards promises of revitalization. The chamber emphasized that doubts regarding China’s commitment to reform have grown over the years due to unfulfilled pledges.
Despite recent announcements, such as a subsidized trade-in initiative for consumer goods, economists are awaiting more concrete strategies to revitalize the vast Chinese consumer market.
Eskelund urged the Chinese government to reassess how to attract European foreign direct investment to regain its status as a prime destination for such investments.
