European Companies are Reconsidering their Strategies in Response to a Protracted Chinese Economic Slowdown Go back »

2015-06-10 | All chapters

The protracted Chinese economic slowdown remains the top business challenge. Pessimism about growth and profitability has forced European businesses to cut back significantly, particularly through headcount reduction: 39% are planning to cut costs—a large jump from just 24% in 2014—with most of them planning employee lay-offs. China remains a key market and thus European companies want the ‘new normal’, much like China wants to move its economy up the value chain. However, the regulatory framework has yet to come into place. In particular, a better implementation of the rule of law is seen as the top driver for China’s economic development going forward, according to the Business Confidence Survey 2015 released today by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

The Chinese economy is facing a paradigm shift, making it necessary for the Chinese Government to discard its ‘old toolbox’ of high, fixed-asset investments and export-driven growth, which created unprecedented overcapacity levels and debt burden in many sectors. China’s economy still has room for growth, and so more than half of European companies remain optimistic about their growth prospects, though this number has dropped 10 points year-on-year. Furthermore, nearly a quarter are pessimistic about their profitability outlook.

Innovation will be one of the most critical drivers needed to move the Chinese economy up the value chain. However, more than two thirds of European companies that engage in research and development (R&D) do not have an R&D centre in China, and those with an R&D presence still tend to use those centres first and foremost for product localisation. European companies would contribute more to the Chinese economy, if they felt more secure from threats, like import substitution and technology transfer attempts, were afforded better protection under China’s intellectual property rights laws through improved enforcement and their productivity was not curtailed by domestic restrictions on Internet access.

The Chinese Government’s reform agenda has not helped in addressing the lack of a level playing field for foreign investors in China’s business environment. In particular, a better implementation of the rule of law is seen as the top driver for China’s economic development going forward. However, European business is uncertain to what extent this is forthcoming, as the three main regulatory obstacles to doing business in China—the unpredictable legislative environment, administrative issues and discretionary enforcement of regulations—remain the same as in previous years.

European Chamber President Jörg Wuttke stated, “European companies continue to view better implementation of the rule of law as the top driver for China’s economic development going forward. However, they are unconvinced to what extent this is forthcoming: Disappointment in China’s reform agenda is palpable within the international business community, as regulatory barriers and market access issues have not sufficiently been dealt with." 

Mr Charles-Édouard Bouée, CEO of Roland Berger Strategy Consultants added: “China is still a strategic market for European companies, yet as the survey uncovered, foreign investment still lacks a level playing field. The ongoing reform agenda has not helped in addressing this – increasing market opening needs to be forthcoming.” 

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About the Business Confidence Survey 2015

The European Chamber Business Confidence Survey 2015 was again produced in partnership with Roland Berger Strategy Consultants and was compiled with input from over 540 European companies operating in China.

About the European Union Chamber of Commerce in China

The European Union Chamber of Commerce in China (European Chamber) was founded in 2000 by 51 member companies that shared a goal of establishing a common voice for the various business sectors of the European Union and European businesses operating in China. It is a members-driven, non-profit, fee-based organisation with a core structure of 45 working groups and fora representing European business in China. The European Chamber is recognised by the European Commission and the Chinese authorities as the official voice of European business in China.

About Roland Berger Strategy Consultants

Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 50 offices in 36 countries and over 2,400 employees, the company has successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 220 Partners. The Chinese market is a key pillar of Roland Berger Strategy Consultants' international expansion. Since its first project in China in 1983, the consultancy has grown rapidly: its five Greater China offices now have 360 consultants dedicated to working extensively with both leading Chinese and international companies.

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