EU firms take dim­mer view

China Daily (Canada) - - FRONT PAGE - By LI XIANG lix­i­ang@chi­nadaily.com.cn

Op­ti­mism about growth and prof­itabil­ity in China among com­pa­nies from the Euro­pean Union has dropped to a record low, with an in­creas­ing num­ber plan­ning to cut jobs in the na­tion, a sur­vey by the Euro­pean Union Cham­ber of Com­merce in China showed on Wed­nes­day.

The sur­vey found that 39 per­cent of EU-based com­pa­nies — a record high — plan to cut costs in China this year, mostly by lay­offs, com­pared with just 24 per­cent last year.

Nearly one-quar­ter of the com­pa­nies are pes­simistic about their prof­itabil­ity prospects in China, ac­cord­ing to the sur­vey. A ma­jor­ity (58 per­cent) of the re­spon­dents re­mained op­ti­mistic about growth out­look, but that fig­ure still rep­re­sented a 10-per­cent­age-point drop from last year, and it was the low­est since 2011.

EU com­pa­nies in industrial goods and ser­vices are the least op­ti­mistic and hard­esthit by the eco­nomic slow­down. Com­pa­nies in the pro­fes­sional ser­vices and con­sumer goods/ser­vices seg­ments have a brighter out­look.

One-third of EU-based busi­nesses said they will put in­vest­ment and ex­pan­sion in China on hold.

China’s po­si­tion in the rank­ings as a tar­get for in­vest­ment has also de­clined. The pro­por­tion ofEU­com­pa­nies that ranked China as the top in­vest­ment tar­get, or even put it among the top three, shrank to 59 per­cent in all, a 9-per­cent­age-point drop from last year.

Ris­ing la­bor costs, which did not even make the list of top 10 busi­ness chal­lenges in China last year, was ranked sec­ond this year. The eco­nomic slow­down in China was ranked the top busi­ness chal­lenge in the sur­vey.

“Com­pa­nies are lay­ing peo­ple off and en­gag­ing in cost re­duc­tion plans to make them slim­mer and bet­ter able to tackle the dif­fi­cult busi­ness en­vi­ron­ment,” said Jorg Wut­tke, pres­i­dent of the cham­ber.

Wut­tke said that while EU com­pa­nies are di­ver­si­fy­ing their in­vest­ment to other mar­kets, they re­main com­mit­ted to China as there is “no sec­ond China” in sight that could com­pare in terms of mar­ket scale and po­ten­tial.

The sur­vey was jointly con­ducted by the cham­ber and Ger­man con­sult­ing firm Roland Berger Strat­egy Con­sul­tants GmbH in Fe­bru­ary and March. They sur­veyed 541 EU com­pa­nies.

About 60 per­cent of the re­spon­dents were small and medium-sized com­pa­nies with fewer than 250 em­ploy­ees. The rest were large multi­na­tional cor­po­ra­tions.

Weak sen­ti­ment among Euro­pean in­vestors sparked wor­ries that their plans to scale back­may put even more down­ward pres­sure on the Chi­nese econ­omy, which is grow­ing at the slow­est rate in the past two decades.

Wat­son Liu, a se­nior part­ner at Roland Berger, said that the neg­a­tive im­pact of Euro­pean com­pa­nies’ job cuts might not be as se­ri­ous as as­sumed, be­cause the sur­vey did not re­flect some new in­vest­ment trends tak­ing place in the coun­try.

“Euro­pean com­pa­nies may be scal­ing back in­vest­ment on some tra­di­tional la­bor-in­ten­sive sec­tors, but they are boost­ing in­vest­ment in new emerg­ing sec­tors such as the ad­vanced and in­tel­li­gent man­u­fac­tur­ing seg­ment, es­pe­cially af­ter China an­nounced the strat­egy of ‘Made in China 2025’ to up­grade the do­mes­tic man­u­fac­tur­ing sec­tor,” Liu said.

The sur­vey showed in­creas­ing de­mand by EU firms for greater mar­ket ac­cess, ef­fec­tive im­ple­men­ta­tion of re­forms and the rule of law and bet­ter pro­tec­tion of in­tel­lec­tual prop­erty rights.

In­ter­net is­sues such as slow speeds and ac­cess re­stric­tions were cited in the sur­vey as im­ped­i­ments to pro­duc­tiv­ity, data ex­change, re­search and in­no­va­tion of EU com­pa­nies.

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