The European Union Chamber of Commerce in China (EUCCC) surveyed over 500 European companies in China and found that while China is becoming more open in many sectors, cost reduction is a challenge for more than half of the European companies in China.
The “Business Confidence Survey 2024” was jointly published by the European Union Chamber of Commerce in China (EUCCC) and Roland Berger Strategy Consultants (Roland Berger) on May 10th.
The findings of a survey conducted among 529 member companies of the European Union Chamber of Commerce in China (EUCCC) indicate a substantial rise in the percentage of firms perceiving market opening: 45%. This represents a nine percentage point increase compared to the previous year’s survey. However, the proportion of member firms contemplating business expansion in China in 2024 is a mere 42%, the lowest level observed in recent years. In competition with Chinese firms, 42% of member firms experienced a decline in market share, whereas 29% managed to increase their market share.
This shows, as Jens Eskelund, President of the European Union Chamber of Commerce in China, said during the conference, that a sizable number of European businesses are still growing in China. He underlined the benefits for European businesses of China’s new visa waiver for eleven European countries. “It is imperative that European corporate executives start expressing that they are willing to travel to China the next week whenever a business opportunity arises; in the past, trips to China usually needed to be planned one, two, or even three months in advance. This makes it easier for relations between China and Europe to rekindle.”
The survey findings indicate that European companies operating “in China for the Chinese (market)” are encountering certain levels of pressure, while those operating “in China for the global (market)” are comparatively in a more favorable position. Jens says this is in line with China’s recent improvement in trade statistics.Historically, the former category of enterprises was typically in a more favorable position.
The survey revealed that 52% of member companies intend to reduce expenses, the highest percentage ever surveyed. There are numerous methods to reduce expenses, such as squeezing suppliers, closing unprofitable product lines, and optimizing the supply chain. According to Jens, 26% of companies intend to reduce expenses by laying off employees out of concern for the impact on employment.
There is apprehension in the survey report that the coping strategies used by companies to adapt to the present business climate could ensnare the economy in a detrimental cycle and worsen its difficulties.
Approximately one-third of the member companies indicated that they intend to reinvest retained earnings in China in excess of 10%. A total of 13% of member companies have made the decision to relocate their current operations from China to another country, while 21% have stated that they will establish their supply chains and operations within China to serve the Chinese market.
As the problems in the market get worse, Jens claims that several European businesses are pulling out of China. His contacts with member companies show that the consequences on enterprises are the same whether they ascribe the problem to slow domestic demand or overcapacity. Recent discussions have focused on the existence of overcapacity.
Approximately 10% of member firms expressed concern that overcapacity could occur in the near future, while 36% of member firms reported that overcapacity was present in their industry. For 42% of the member firms, the prices showed a downward tendency.” Continued weak demand has weakened firms’ profitability while exacerbating the overcapacity problem.” As the report stated.
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