European Business in China--Business Confidence Survey 2024
By Denis Depoux
Denis Depoux, Global Managing Director, presented the annual Business Confidence Survey of the European Union Chamber of Commerce in China (“the repot”) with its President Jens Eskelund on May 10. Roland Berger has been cooperating with the Chamber for more than 15 years to pulse the European business sentiment.
As the report says, this year, pessimism remains - Highest share (68%) of respondents reporting a more difficult business environment, even more than 2023. After the lift up of zero-Covid measures, the reasons behind now have shifted to the slower domestic economy with 55% of respondents ranking it as #1 concern, well above the global slow down (30%) or geopolitical tensions (15%).
Domestic demand is slow and volatile, resulting in increased competition and losing market share for European businesses (42% losing to domestic competitors, while 29% gaining). In this negative market cycle, domestic Chinese competition is more productive (thanks to investment made in capacity and automation during the Covid years), and more sophisticated - Chinese companies looking for new outlets are also eying the high end segments, domestically and abroad, and they have become good at it!
China has always been the fitness club of international businesses (as Joerg Wuttke would say), but this is a wake up call to international companies that were enjoying leadership, across multiple industries, when it came to premium segments. That competition is very visible and talked about in electric vehicles or renewable energy, but this is happening across the board: commodity and specialty chemicals, building materials, machinery, electrical and electronic equipment, etc.
The Chinese market remains existential for many companies, and 2/3 of respondents report profits, through on the same level like 2022, a year crippled by zero-Covid. China's economy is normalizing: from decades of continuous growth with few accidents, to a more cyclical, unpredictable, still fast moving and highly competitive market. More than a third of our respondents reported declining profits, and the share of profits in China vs. RoW declines as well.
In that more difficult cycle, conditions for market access will be even more important. 45% of respondents indicate new market opening, as a result of a recent charm offensive of the Chinese authorities, with new segments opening (for example financial services, cosmetics, food and ingredients, or cloud services in one FTZ, etc.). The recent "24 measures", as well as extension of some IIT exemptions, helped achieve this positive development (+10% from 2023). Yet, as usual, clearer, more foreseeable implementation of some measures, down to local authorities, remain expected - But it seems that all branches of government are now listening (while not yet talking to each other sometimes). This will be key to lift FDI: China is losing its appeal vs. other destinations, while remaining in top 5 for 2/3 of respondents.
