European companies are generally pessimistic about the outlook for the Chinese economy, with unprecedented levels of pessimism and a historic low in investment willingness towards China. At the same time, the attractiveness of Southeast Asia and India is increasing.
The European Union Chamber of Commerce in China stated on May 10 that European companies are more hesitant to expand their investments in China and are continuing to focus on other regions such as Southeast Asia and India.
The results of the annual business confidence survey by the European Union Chamber of Commerce in China show that only 15% of respondents (a historic low) still consider China as their first choice for investment, compared to 27% in 2021. Additionally, 13% (also a historic low) view China as a future investment destination, while another 13% of respondents stated that they do not plan to further invest in China, marking a historic high.
More than two-thirds of respondents indicated that doing business in China became more challenging in 2023, the highest proportion since this issue was first raised in 2014.
Over one-third of EU companies in China mentioned that overcapacity is prevalent in their industries, with the construction and automotive sectors being the most affected, attributed to excessive investment in Chinese capacity and insufficient domestic demand. These companies believe that excessive investment suppresses prices and increases competition pressure in China.
Concerns about the slowdown of the Chinese economy in 2024 have intensified among respondents. 55% of them consider it a major business challenge, compared to only 36% last year.
More than half of the surveyed companies are planning cost-cutting measures, with 26% planning to reduce costs through layoffs. Only 42% of the companies have plans to expand their business in China this year, the lowest proportion on record since 2012.
The survey shows that with the declining attractiveness of China as an investment destination for European companies, the main beneficiaries of capital reallocation are the ASEAN region, followed by Europe, India, and North America.
The annual survey report cited responses from 529 members of the European Union Chamber of Commerce in China who have been doing business in China in the first two months of this year. The report indicates that China is no longer an option for all European companies.