European firms in China optimistic about growth prospects

Beijing, May 31 (People’s Daily Online) – Financial performance and optimism on profitability have decreased to an all-time low for European companies in China last year, however, most companies perceive growth prospect in China, according to Business Confidence Survey 2013 released Thursday by the European Union Chamber of Commerce in China (EUCCC) and Roland Berger Strategy Consultants.

Raising labor costs, slower economic growth, lower demand and intensified competitions are main factors affecting net profit margin for European companies in China, the report said.

Only 44 percent of surveyed companies reported an increase in their earnings, while 21 percent of them have decreased in profit. Among them, a nearly half of all European companies that less than five year operation in China and of all small-and mid-sized companies failed to make a profit last year, the survey concluded. The rising labor cost is the major factor that negatively impacting on profit margins, and talent shortage as seen the primary HR challenge, with high expectations in pay and benefit from local talent further impacting the outlook.

Even the performance is worsening and optimism is waning for European companies, 71 percent of companies are still optimistic about growth prospects in future years. Almost half of European companies point out that China occupied 10 percent of their global revenues. Chinese market has become more important in European companies’ global strategies.

The survey shows 86 percent of European companies are committed to further investment in China to build upon their current capabilities and maintain competitiveness. China is still European companies’ preferred market. Over half of the companies plan to expand their business to other provinces in China. Although coastal areas remain the key market, European companies have shown growing interest in western China.

In the face of the worsening financial performances of European companies, Davide Cucino, president of the EU chamber in China expects Chinese government to implement some changes to mitigate cost escalations through productivity increase.

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