DRAFT European firms cut back in China

European firms with operations in China are likely to cut back on costs of doing business there, while the number of those remaining positive about trading is lower than a previous poll, according to new research.

The latest annual survey by the European Union Chamber of Commerce in China, with input from more than 540 European companies operating in China, suggested pessimism about growth and profitability has forced European businesses to cut back significantly, particularly through headcount reduction.

Key findings of the poll included:

• 39% of firms surveyed planned to cut costs – up from 24% in 2014.

• Of those companies, 61% planned to reduce headcount, 52% planned to reduce procurement costs and 36% said they would reduce rental expenses.

• 58% remained optimistic about growth prospects, although this was 10 percentage points lower than last year. The number has been declining every year since 2010.

• Only 28% were optimistic about profitability prospects, another five-year low.

• Almost a third were said to be putting investments on hold.

However there were some bright spots in the research. According to the survey, more than 40% of firms polled reported year-on-year sales growth in the range of 5 to 20%, while 17% reported higher than 20% growth and a quarter reported stable sales (5%+/-).

But more importantly, the EU Chamber survey also shows that despite China’s troubled state, it does not seem like there are many better investment alternatives.

The majority of respondents (84%) choose to withhold investment rather than shifting investment to other markets. In other words, China remains a key market for them.

Looking forward, the Chamber leaders once again called for a level playing field for foreign investors in China’s business environment.

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