European Companies Report Improved Financial Results, but Continued Doubts over China’s Reform Agenda Remain
The European Chamber’s annual Business Confidence Survey reports that while many companies posted improved financial results in 2016, they continue to face the same longstanding market access barriers, and are not convinced that this situation will improve over the next five years. A successfully concluded EU-China Comprehensive Agreement on Investment (CAI) with a strong market opening component will be crucial for strengthening European investors’ confidence.
Beijing: The European Chamber, in cooperation with Roland Berger, today released its annual Business Confidence Survey 2017. The report finds that while President Xi Jinping’s anticorruption drive has had a noticeable impact, European business remains underwhelmed by the continued lack of progress with the reform agenda overall. Respondents do report that business improved last year—with over half of enterprises achieving higher sales than in 2015—but this can largely be attributed to the major financial stimulus that the Chinese authorities injected into the economy during the first half of 2016, which is not sustainable, as well as the nimbleness of European companies.
European companies’ disappointment with the reform agenda outlined in the Third Plenum’s Decision in 2013 is clear:
- Half report feeling less welcome compared to when they first entered the market.
- Over the last four years, more than half have consistently reported that foreign-invested enterprises (FIEs) are treated unfairly compared to domestic Chinese companies.
- 61% believe that environmental regulations are strongly enforced against foreign companies, while only 14% and 17% report that they are strongly enforced against Chinese privately-owned enterprises (POEs) and Chinese state-owned enterprises (SOEs) respectively.
Notably, there is a lack of confidence that China’s reform agenda will make significant progress in the short term – only 15% of respondents believe that regulatory barriers will decrease over the next five years, while 40% believe that they will actually increase. This is despite the fact that the State Council’s Document No.5 on improving China’s operating environment for foreign business was released just before the survey was conducted.
China could begin to reverse this perception by offering reciprocity in bilateral economic relations. Chinese investment into the EU in 2016 was more than four times the sum flowing in the opposite direction, but 56% of European companies report that if better market access were granted they would be prepared to ramp-up their investment. China needs to stop punching below its weight on investment attraction.
“The key to growing bilateral trade and investment is a successfully negotiated Comprehensive Agreement on Investment (CAI) with a strong market-opening component,” said European Chamber President Mats Harborn. “This would indicate that the Chinese authorities’ aspirations about leading on economic globalisation are sincere, and would enable European business to contribute more to the sustainable development that China needs if it is to avoid getting stuck in the middle income trap.”
The report also includes a wake-up call for European business – competition in China has stiffened. While less progress is perceived to have been made on industrial goods, respondents feel that privately-owned Chinese companies have become a lot more innovative, often in areas that are not over-regulated for domestic firms.
“European companies in China acknowledge that Chinese companies are getting increasingly innovative. Rather than a challenge, this should be perceived as an opportunity,” said Roland Berger Co-Head for Asia, Denis Depoux. “European Business can be a key contributor to the innovation required from Chinese business to climb up the value chain, and they can also learn from domestic innovation for their own benefit, notably on go-to-market related innovation.”
About the European Union Chamber of Commerce in China
The European Union Chamber of Commerce in China (European Chamber) was founded in 2000 by 51 member companies that shared a goal of establishing a common voice for the various business sectors of the European Union and European businesses operating in China. It is a members-driven, non-profit, fee-based organisation with a core structure of 25 working groups and fora representing European business in China. The European Chamber is recognised by the European Commission and the Chinese authorities as the official voice of European business in China.
About Roland Berger
Roland Berger is an independent company founded in 1967. Roland Berger remains the only leading global consultancy firm with non-Anglo-Saxon roots. We are German by origin, European by nature and global by ambition, including a strong footprint in Asia. Our entrepreneurial spirit has shaped our growth and fueled our outstanding achievements since the early days of the firm. In short, being a game changer is in our DNA. With nearly 50 years of continuous growth behind us and 2,400 employees working in 34 countries, we are one of the leading players in global top-management consulting and have successful operations in all major international markets.