(Bloomberg) — European companies operating in China said doing business became harder over the last year, with slowing output, rising wages, the trade war and other factors adding to challenges in the world’s second-largest economy.
Fifty-three percent of respondents said business had grown more difficult, according to the survey of business confidence released Monday by the European Chamber of Commerce in China. That compares to 48% who said the same last year.
China’s economic slowdown was ranked as the top concern in the survey, which was conducted in January and February. Since then, the economy has continued to lose momentum, with weak domestic consumption and exports weighing on growth.
The next biggest concerns were the global economic slowdown and rising labor costs, followed by the U.S.-China trade war. Earlier this year American companies listed similar concerns, with “bilateral tensions” just behind long-standing issues such as labor costs and inconsistent policy interpretation and uneven enforcement.
Over a third of the 585 European companies that responded to the survey said they had been negatively affected by the tariffs the U.S. and China have imposed in the trade war. However, as many European companies in China are aimed at the domestic market, the majority of firms have been unaffected.
Only 6% of companies have moved or are considering moving relevant production out of China, but any escalation of tensions would “take a heavy toll on business sentiment, leading to a tightening of investments,” the chamber said in the report.
European firms continue to complain about restrictions on market access and regulatory obstacles, two longstanding issues that foreign companies face.
The chamber also highlighted a “reform deficit” — in which China’s reform and opening up has failed to keep pace with rapid economic growth.
“One of the more significant shortcomings of China’s reform agenda is that certain high-level promises to improve its business environment for international companies have failed to translate into concrete action,” it said.
The report also highlighted the continued concerns about forced technology transfers, with 20% of respondents saying they had felt compelled to transfer technology in order to maintain market access. This was an increase from 10% in 2017, and was a particular issue in high-value, high-tech industries such as chemicals and petroleum, medical devices, pharmaceuticals and cars.
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