The Strategist

Europeans are getting disillusioned with business in China

06/08/2016 - 15:23

European companies are getting increasingly disappointed in prospects of doing business in China. The worsening business climate in the country continues to affect mood of foreigners.

austrade via youtube
austrade via youtube
About 31% of European companies are pessimistic about the future profits from China, according to a survey presented in a joint report by consulting company Roland Berger Strategy Consultants and the European Union Chamber of Commerce in China. The survey was conducted in February and March 2016 among 506 companies. In 2015, the number of "pessimists" was 23%. As noted by Bloomberg, the survey’s results show record levels of pessimism among European companies towards business in China.

So far, however, only 11% of respondents aired plans to redirect investments into other markets. 41% of business representatives are going to reduce costs, including reducing staff. Just 47% of respondents are planning to expand their presence in China (this figure was 56% in 2015, and 86%- in 2013). At the same time, the report notes that more than half of the respondents reported an increase in their sales in China in 2015.

The report of Roland Berger and the European Union Chamber of Commerce in China says that the decadent mood among European businesses in relation to China is fueled by "increasingly hostile" business climate. Above that, many respondents note that the Chinese authorities have not managed to create an open and competitive market. "The authorities have repeatedly pledged to carry out reforms in order to deliver market-based economy. However, reality always was that China is moving in the opposite direction, releasing laws with vague wording, reducing access to the Internet and thereby impeding both local and international business ", - the report says.

The report expressed particular concern in the information technology and telecommunications market, as China is setting new barriers to access in these areas.

President of the EU Chamber of Commerce in China, Joerg Wuttke to Financial Times that the reason for pessimism is "broken promises" of the Chinese authorities to conduct market reforms.

According to a recent forecast issued by the Organization for Economic Co-operation and Development (OECD), the growth rate of China's GDP will decline in 2016 and 2017 (growth in 2016 is projected to be 6.5%, in 2017 - 6.2%). One of China's major problems is the problem of bad debts. According to CLSA brokerage’s estimates, in 2015 the volume of non-performing loans amounted to about 15-19% of all loans issued by Chinese banks (at that, the official Chinese statistics says that bad debts account for only 1.67% of all loans). Losses from bad loans for the Chinese banking sector, according to CLSA estimates, may be 6.9 to 9.1 trillion yuan ($ 1.1 - $ 1.4 trillion).