European companies operating in China are facing increasing challenges in maintaining profitability, according to a survey conducted by the EU Chamber of Commerce in China. The survey revealed that businesses are experiencing difficulties due to slowing growth and mounting overcapacity pressures in the country.
Carlo D’Andrea, the head of the chamber’s Shanghai chapter, highlighted concerns among members about delays in receiving payments, especially from state-owned enterprises. These delays are often used as a means for these enterprises to obtain de facto loans from smaller businesses.
The survey indicated a decline in profit margins for European companies operating in China, with only 30% of respondents reporting higher profit margins compared to their global averages. This reflects a trend observed over the past eight years, indicating persistent challenges for businesses in the Chinese market.
Jens Eskelund, President of the EU Chamber of Commerce, pointed out similarities between the current slowdown in Chinese growth and previous cyclical downturns. However, uncertainties remain regarding the duration and depth of the current economic deceleration.
The survey also highlighted difficulties faced by companies in repatriating dividends to their headquarters, with 4% of respondents reporting obstacles in doing so. Additionally, concerns were raised about overcapacity in various industries, with more than one-third of respondents observing excess production capacity.
Despite these challenges, Eskelund noted efforts by Chinese authorities to attract foreign investment, including visa-free policies and tax exemptions for international staff. However, skepticism among respondents regarding the business environment in China remains high, with many expressing concerns about regulatory barriers and competitive pressures.
Overall, the survey underscores the complex operating environment for European companies in China and the need for continued efforts to address regulatory challenges and enhance market access.
