European companies in China: pessimism and declining profits!

European companies in China: pessimism and declining profits!

European companies in China are increasingly pessimistic about their business prospects. A recent survey by the European Union Chamber of Commerce in China, which surveyed 1,700 members, shows that only 29% of companies are optimistic about their growth prospects in the next two years. Compared to the previous year, the mood has fallen by three percentage points. This development is influenced by both weak demand and geopolitical tensions between the USA and China.

The survey, conducted between January and February, took place before the escalation of the trade dispute between the two countries. A key factor in the lower business climate rating is the price war and falling investments, which together weigh on companies' profits. The predictability and reliability of the market in China have decreased, and frequent and opaque regulatory changes are leading to increased uncertainty among companies.

Challenges for companies

Another negative aspect reflected in the survey results is the weak demand in the Chinese market, which is heavily influenced by the ongoing real estate crisis. Consumers tend to reduce their spending and save more. This development has a direct impact on consumption and puts a strain on company sales.

In addition, there is strong competition in many industries, which, together with price pressure from competitors, is causing more and more companies to struggle. The politicization of certain industries also makes business activities significantly more difficult for some companies. Regarding future investments, companies show alarming figures: less than 25% plan to invest their capital in China this year, which is a record low.

Strategic adjustments

Circumventing A large number of European companies are adapting to increasing challenges. Around half of the companies surveyed plan to cut costs, which often leads to job cuts. The trend to direct more investments to Europe is increasing. In addition, supply chains are being adjusted to minimize geopolitical risks. Some companies are even localizing part of their production in China in order to better respond to market uncertainties.

An increasingly important factor for the European economy in China is the problem of export controls, especially with regard to rare earths and magnets, which have a negative impact on the company landscape. There is a risk of a production stop in Europe as many companies are having difficulties with the necessary export applications.

The current challenges cast a long shadow over the long-term prospects of European companies in China. More information about the survey results is available tagesschau.de as well as spiegel.de.