European business optimism about China has reached a record low, according to the EU Chamber of Commerce in China. The chamber’s annual survey found that 73% of respondents reported it has become more difficult to do business in the country over the past year, marking a new high for the fourth consecutive year.
Key Findings from the Survey
- Survey Details: Conducted between January and February, the survey included 503 respondents.
- Challenges: The results indicate that challenges for foreign businesses have increased since pandemic lockdowns disrupted supply chains last year.
Major Challenges Facing European Companies
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Increased Competition:
- Local brands have become more competitive.
- Overall consumer demand remains lackluster due to:
- Real estate slumps.
- Job market uncertainty.
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Supply Chain Necessity:
- Despite difficulties, many companies find compelling supply chains in China that necessitate their presence in the market.
-
Uncertainty:
- Jens Eskelund, president of the EU Chamber of Commerce in China, stated, "We haven’t seen an inflection point yet. A lot of it boils down to uncertainty."
- Companies are not leaving due to profitability concerns.
Pessimism About Future Prospects
- Many businesses remain pessimistic about their prospects in China.
- Companies feel squeezed but still see value in maintaining operations there.
Talent and Labor Challenges
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Talent Access:
- 71% of respondents reported difficulty accessing talent due to:
- Rising wages.
- Increasing competition from countries like Vietnam and Indonesia.
- Labor costs are expected to rise by up to 15% annually over the next five years.
- 71% of respondents reported difficulty accessing talent due to:
-
Regulatory Compliance and IP Protection:
- 60% reported difficulty complying with regulations on data security.
- Nearly 49% experienced problems with intellectual property protection enforcement.
Sector-Specific Insights
- Some sectors, such as technology, saw improved sentiment compared to last year’s survey results, although still at historic lows.
- Other sectors, including automotive, experienced declines across all indicators measured by the chamber.
Conclusion
The overall outlook remains bleak for European businesses operating in China, but some sectors may see slight improvements going forward.
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