European businesses have never been this gloomy about China

CNBC

28-05-2025

BEIJING — European business optimism about China has hit its lowest on record – worse than during the pandemic — due to slower growth and geopolitical worries.
A record 73% of respondents in the EU Chamber of Commerce in China's annual survey said doing business in the Asian country has become more difficult in the past year, marking a new high for a fourth-straight year.
That's just one of the several record lows in sentiment found in the annual survey, which has been published since 2004. The latest study released Wednesday, covered 503 respondents in January and February.
"Companies are really feeling the squeeze, being pessimistic, but again finding very compelling supply chains in China that necessitate a continued presence [in] the Chinese market," Jens Eskelund, president of the chamber, told reporters this week.
Still, that doesn't mean business confidence is close to returning.
"We haven't seen an inflection point yet," Eskelund said. "A lot of it boils down to uncertainty."
The survey reflected how challenges for foreign businesses in China have largely increased since the pandemic lockdown in 2022 disrupted supply chains. While local brands have become more competitive, overall consumer demand has remained lackluster amid the real estate slump and uncertainty in the job market.
Cosmetics companies were particularly hit. The industry blamed a drop in local demand and reported a 45% drop in revenue in 2024 from a year before — only the second decline in the past decade, according to the chamber's report.
On the other hand, aviation and aerospace were the rare industries saying that doing business in China became easier.
Slower growth is diminishing China's attractiveness relative to other markets.
A record low of only 12% of respondents were optimistic about profitability in China in the coming two years, while the fewest on record ranked the country as a top destination for future investments. Another record low of 38% of respondents said they planned to expand in China over the coming year.
And while Beijing has announced efforts to improve conditions for foreign investment, many challenges remain.
A record 63% of respondents said they missed business opportunities in China last year due to market access restrictions and regulatory barriers. Medical device businesses who responded said European companies experienced discrimination due to public procurement practices favoring domestic players.
The scale of pessimism echoed an annual survey of U.S. companies in China released in late January that showed a record share of American businesses were accelerating plans to relocate manufacturing or sourcing.
Meanwhile, 53% of respondents said they would increase their investments in China if more action was taken to improve local market access.
China remains dominant in the global supply chain for its ability to offer quality parts at the lowest price — the only way that businesses are able to stay competitive, Eskelund said, citing conversations over the last three weeks with hundreds of companies across the chamber's six chapters in China.
When asked about supply chain diversification, more than a quarter of respondents said they were increasing onshoring to China as a way to meet localization requirements and better reach the domestic market.
A far smaller share at 10% of respondents said they were establishing overseas alternative supply chains while keeping their existing network in China. The survey also found that nearly half of respondents said their Chinese suppliers were also moving operations to other markets.
Chinese and EU leaders are set to hold a summit in Beijing in July as both try to strengthen bilateral ties amid higher U.S. tariffs. The EU is China's second-largest trading partner on a regional basis.