European companies cut costs and scale back investments in China

Euronews

28-05-2025

The challenges reflect broader ones faced by a Chinese economy hobbled by a prolonged real estate crisis that has hurt consumer spending. Beijing also faces growing pushback from Europe and the United States over surging exports.
'The picture has deteriorated across many key metrics,' the European Union Chamber of Commerce in China said in the introduction to its Business Confidence Survey 2025.
The same forces that are driving up Chinese exports are depressing the business outlook in the Chinese market. Chinese companies, often enticed by government subsidies, have invested so much in targeted industries such as electric vehicles that factory capacity far outpaces demand.
The overcapacity has resulted in fierce price wars that cut into profits and a parallel push by companies into overseas markets.
In Europe, that has created fears that growing imports from China could undermine its own factories and the workers they employ. The EU slapped tariffs on Chinese EVs last year, saying China had unfairly subsidised electric vehicle production.
'I think there's a clear perception that the benefits of the bilateral trade and investment relationship are not being distributed in an equitable manner,' Jens Eskelund, the president of the EU Chamber in China, told reporters earlier this week.
He applauded efforts by China to boost consumer spending but said the government must also take steps to ensure that supply growth doesn't outpace that in demand.
The survey results show that the downward pressure on profits increased over the past year and that a fall in business confidence has yet to bottom out, Eskelund said. About 500 member companies responded to the survey between mid-January to mid-February.
'It is just very difficult for everyone right now in an environment of declining margins,' he said.
European stock markets mostly extended their rally for a third consecutive trading day on Wednesday as concerns over escalating US-EU trade tensions eased. Germany's DAX rose 0.18% to 24,269.47, marking a fresh record high, while the Euro Stoxx 600 rose 0.07% to 552.71.
US President Donald Trump expressed optimism toward the trade negotiations. 'I have just been informed that the EU has called to quickly establish meeting dates,' he wrote in the Truth Social, 'This is a positive event, and I hope that they will, FINALLY, like my same demand to China, open up the European Nations for Trade with the United States of America. They will BOTH be very happy, and successful, if they do!!!'
The US president's comments also lifted Wall Street, with the Dow Jones Industrial Average up 1.78%, the S&P 500 rising 2.05%, and the Nasdaq composite surging 2.47% on Tuesday.
On Sunday, Trump announced he had agreed to postpone the implementation of a 50% tariff on EU imports until 9 July, following a phone call with European Commission President Ursula von der Leyen. During the call, von der Leyen expressed the EU's readiness 'to advance talks swiftly and decisively' in a bid to avert further trade escalation.
Trump had initially announced 20% 'reciprocal tariffs' on EU goods on 2 April before reducing the rate to 10% for 90 days. However, last Friday, he threatened to impose a 50% tariff from 1 June, citing frustration over the pace of negotiations and disagreement among EU member states.
While specific meeting dates remain absent publicly, EU Trade Commissioner Maroš Šefčovič is expected to meet his US counterpart in Paris next Tuesday during the Organisation for Economic Co-operation and Development (OECD) summit. Talks are expected to focus on removing bilateral tariffs on industrial goods and addressing US import levies on steel, aluminium, semiconductors, automobiles, and pharmaceutical products, according to sources familiar with the matter.
Earlier this month, the EU postponed a proposed package of retaliatory tariffs on up to €95 billion worth of US imports, including wine, spirits, aircraft, auto parts, electrical products, and more.
The DAX is up 22% year-to-date, making it the top performer among major global indices. The index had pulled back sharply in April following Trump's announcement of the reciprocal tariffs but has consistently rebounded on signs of de-escalation in trade tensions.
In sectors, the defence and banking stocks led the broad gains, underpinned by optimism over Germany's fiscal and defence spending reforms. In March, Germany's Friedrich Merz announced plans to increase defence spending beyond 1% of GDP and a €500 billion special fund for infrastructure investment. The landmark fiscal package particularly lifted sentiment in European defence and industrial stocks, with Rheinmetall AG shares soaring 207% so far this year, repeatedly hitting new highs.
Meanwhile, European banking stocks have been supported by the European Central Bank's accommodative monetary policy stance, which has bolstered investment banking income and lending activity. Shares of Deutsche Bank and Commerzbank soared 50% and 75% respectively this year.
Despite the bullish momentum in equities, the euro weakened against the US dollar, as the greenback staged a strong rebound following Trump's decision to delay tariffs — a move that mirrored previous dollar rallies during the US-China trade talks.
The EUR/USD pair fell to just above 1.13 during Wednesday's Asian session, retreating from over 1.14 on Monday, as markets priced in renewed optimism over US-EU trade negotiations and an improved US economic outlook.