European businesses feel less optimistic about growth in China as trade war bites

European firms are increasingly hesitant about their ability to grow in China, citing the country's economic slowdown and ongoing trade war with the US, according to recent research from the European Union Chamber of Commerce in China.

The report showed less than half of European businesses are positive about growth in the country over the next two years.

Alongside a tricky trading environment, businesses are also being hampered by market access and regulations, according the survey of nearly 600 European businesses.

Trading sanctions

Conducted alongside consultancy Roland Berger, the survey found that although European companies share many of the US’s concerns when it comes to the trading environment in China, they are largely against the use of tariffs.

Companies are feeling the impact of the measures on their US-bound exports. And while most have yet to notably shift strategy for their China operations, the trade war was cited as a key concern for future business development.

Bureaucratic challenges

Rapid growth in China over the past decades has attracted many European businesses - but now they would like to see a more even playing field and predictable legislative environment. Two-fifths of companies reported regulations had eaten into their profit margins in 2018.

Many also bemoan the preferential treatment granted to local businesses, citing limited market access, administrative issues and challenges communicating with government officials. Conversely, Chinese businesses in the EU are treated on par with their local counterparts, with access to legal recourse, the report noted.

That said, around a third of European businesses say they now feel more welcome in China than when they first entered the market.

Staying put

Despite the challenges of operating in the country, the majority of respondents still see China as a key venue for future investment.

Alongside access to China’s burgeoning middle class, a foothold in the Chinese market is seen as a way of accessing some of the nation’s pioneering entrepreneurs. Increasingly, Chinese firms are viewed as being more innovative than their European counterparts. And many European businesses welcome the benefits this could bring in the form of improved suppliers and stronger competition, which could drive better prices and products overall, according to the chamber survey.

Growing innovation by Chinese enterprises has been driven in large part by significant spending on research and development. China surpassed R&D spending in the EU in 2012 and is continuing on an upwards trajectory, according to the Organization for Economic Cooperation and Development.