European Businesses in China Remain Committed to the Market

Chongqing-  The European Chamber of Commerce in China (EU Chamber) launched its European Business in China Business Confidence Survey 2022 in Chongqing on August 24, 2022. Published annually since 2004, the business confidence survey (BCS) has enabled the European Chamber to build a rich database that serves as a broad indicator of how European companies judge the business environment in China. Based on the insights from 620 European companies doing business in China, the 2022 BCS was conducted over four weeks from February to March 2022 and published in June.

Overview of The Survey

As revealed in the survey, while 2021 was overall a good year for bottom lines, there is still room to improve. As both internal and external challenges mounted, 60% of respondents reported that it became more challenging than in 2020. That being said, two-thirds of European businesses operating in China saw their revenues grow 24 percent in 2021, compared with the previous year. Thus, despite the wealth of difficulties, they still see significant potential in the market.  

Key Concerns Highlighted by Foreign Businesses

As long as COVID-19 haunts China and the rest of the world, it ranks as the top challenge to European companies operating in China. International travel restrictions and partial lockdowns create hardship for supply chains and businesses that require boots on the ground. Moreover, it makes it more challenging to attract and retain international talent. An exodus of foreign employees poses a looming challenge since it could reduce know-how and best practices between headquarters and China operations and cause communication problems.

While not the primary concern for companies, the Russia-Ukraine conflict was also cited as another significant factor impacting business outlook. According to the survey, the regional conflict has negatively affected logistics to and from Europe. 7% of companies in the survey have considered ending current or planned projects due to the associated risks.

In response to these challenges, European businesses in China are localizing essential functions such as staff positions, IT, and data storage infrastructure. They tend to believe that to stay competitive and they must maintain a presence in China. Localizing essential functions to shore up their China operations can minimize exposure to current and future uncertainties and mitigate the impacts of the COVID-19 pandemic.

European Businesses in China Remain Committed

"The cover of this year's BCS can tell that we are not losing hope," said Jörg Wuttke, President of the European Union Chamber of Commerce in China, "As it shows, the lighthouse still stands firmly  and shines in the torrents even though the huge black swan is waving the powerful wings and the water below is growing choppier." Most foreign businesses still choose to remain in China despite the current headwinds and view the country as an essential market.  

China has a market of 1.4 billion consumers, some of the world's leading manufacturing clusters, and, in more recent years, a vibrant innovation ecosystem. European companies consider it imperative to take part in China's growth story. The expanding middle class in China opens many opportunities for European companies. 

When asked whether he remains optimistic about the future, Mr. Wuttke prefers to remain realistic. The challenges are real, but the rewards of staying the course are also clear. China has the potential to become a hotbed for research and development (R&D) activities, especially for large multinational corporations. According to the survey, 40% of respondents now view China's R&D environment as more favorable than the global average. And European businesses are forging ahead in decarbonization—an area ripe for deepening European Union-China cooperation. In China, more than half of European companies aim to be carbon neutral by 2030, making them potential strong contributors to the country's carbon neutrality drive.