European Firms are Adapting to a New Sober Reality in China by Revising Down Expectations and Investment Plans Go back »

2014-05-29 | All chapters

Growth figures for revenue, profitability and profit margins continued to decline across the board for European firms in China. Going forward, companies do not envisage these current business pressures easing. Labour costs are expected to continue to rise, competition is set to further intensify and a Chinese economic slowdown is now regarded as the primary challenge to business in the short-term. The sheer size of China’s marketplace means that it will continue to offer substantial opportunities and remain strategic for European companies, but this new sober reality is leading European companies to trim down their investment plans for China. 

European Chamber member companies missed out on an estimated EUR 21.3 billion in revenues due to market access and regulatory barriers in 2013. This manifests in a sense of inequity as most European companies feel that domestic Chinese companies continue to receive favourable treatment. Two analogous issues―the unpredictable legislative environment and the discretionary enforcement of regulations―are identified as the two most significant regulatory challenges. It is therefore unsurprising that European companies most want to see administrative reforms and that increased rule of law continues to be ranked first as the driver deemed most significant for China’s future economic performance. Meaningful implementation of reforms would prompt European companies to scale up their investment plans in China, but increased market access is the factor that would induce the largest re-expansion of investment.

Jörg Wuttke, President of the European Chamber commented, “The Chinese economic slowdown and tougher business conditions are starting to bite and financial performances are getting much tighter. Half of European companies already believe that the ‘golden age’ for multinational companies in China is over. A Chinese economic slowdown is a game-changer that will fundamentally and necessarily alter corporate business strategies. With costs rising and regulatory issues continuing, European companies are starting to put expansion plans on hold. Although the reform agenda laid out in the Third Plenum Decision and other policy developments over the last year are regarded as positive, European firms are yet to be convinced that real change will be made in the coming one to two years. Instead, it is market-opening reforms that present an immediate opportunity. A lifting of market access constraints would spur over a half of European companies to re-intensify their China investment plans.”

Charles-Edouard Bouée, President of Roland Berger Strategy Consultants Asia, said, "China is certainly still a strategic market for European companies, affording significant opportunities. If there are more positive policy developments, specifically greater market access and lower regulatory barriers, increased investment would follow."

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The European Chamber Business Confidence Survey 2014 was again produced in partnership with Roland Berger Strategy Consultants and was compiled with input from over 550 European companies operating in China.

About the European Union Chamber of Commerce in China

The European Union Chamber of Commerce in China was originally founded on 19th October 2000 by 51 member companies based in China. It now has approximately 1,800 member companies throughout China across nine offices in seven chapters. The rationale for the establishment of the European Chamber was based on the need of the European Union and European businesses in China to find a common voice within various business sectors. The European Chamber is recognised by the European Commission and the Chinese authorities as the official voice of European Business in China, and seeks greater market access and improved operating conditions for European companies.

About Roland Berger Strategy Consultants

Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With over 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 250 Partners. The Chinese market is a key pillar of Roland Berger's operations. With five offices and over 360 consultants, Roland Berger Greater China has 30 years of experience working extensively with leading Chinese and international companies to address critical issues in strategy, operations, and performance.

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