A robot produces car parts on the assembly line of an auto parts manufacturer in Minhou County, Fuzhou, China, May 7, 2024.
Photo only | Photo only | Getty Images
BEIJING – European companies in China are finding it harder to make money in the country as growth slows and pressure for overcapacity increases, according to a survey released Friday by the EU Chamber of Commerce in China.
In the metropolis of Shanghai, company members even reported delays in payments, according to chapter leader Carlo D’Andrea, because enforcing contracts had become more difficult compared to the previous year.
“State-owned enterprises have deferred payments and are using this to obtain de facto loans from companies, especially small and medium-sized enterprises,” D’Andrea said, citing members’ comments.
China’s growth has slowed in recent years due to geopolitical tensions. A slump in the real estate sector, which is closely linked to municipal finances, has also affected the economy.
Only 30% of EU Chamber survey respondents said their profit margins in China were higher than their company’s global average – an eight-year low.
In 2016, only 24% of respondents said their profit margins were better in China than globally, the report said.
This reflected a crash in China’s stock market in the summer of 2015, coupled with a slowdown in the real estate market at that time, EU Chamber President Jens Eskelund pointed out to reporters.
He said the current slowdown in China’s growth had similar cyclical aspects, but there were questions about how long and deep it would be this time.
The Chamber’s most recent survey included 529 respondents and was conducted from mid-January to early February.
This year’s questionnaire included a new question about whether members had difficulty remitting dividends back to their headquarters. While more than 70% reported no problems, 4% said they were unable to do so, and about a quarter said there were difficulties or delays.
It was not immediately clear whether this was due to a new regulatory stance or typical tax audit requirements.
What’s happening now is that companies are starting to realize that some of these burdens may be taking on a more permanent nature.
Jens Eskelund
EU Chamber of Commerce in China, President
China’s economy is far larger today than it was in 2015 and 2016. Trade tensions with the US have also increased in recent years, with Beijing doubling its production to boost technological self-sufficiency.
“Our members recognized to some extent that their ability to grow and make profits in the Chinese market – [the] “The correlation with the GDP number is getting weaker,” Eskelund said.
“What matters to foreign companies is not necessarily some kind of gross GDP number, 5.3% or whatever, but the composition of the GDP,” he said. “If GDP grows because more is invested in production capacity, that is not good for foreign companies. But if GDP grows because domestic demand grows, then that’s a good thing.” “
China’s statistics bureau will release fixed investment, industrial production and retail sales for April next Friday.
Overcapacity excess
China’s focus on manufacturing coupled with modest domestic demand has led to growing concerns around the world that overproduction will squeeze profit margins.
More than a third of EU Chamber survey respondents said they had identified excess capacity in their industry last year, and a further 10% expect this to be the case in the near future.
The highest proportion of respondents reporting excess capacity were in civil engineering, construction and the automotive industry.
More than 70% of respondents said overcapacity in their industry led to price declines.
“This is not just European companies complaining,” said Eskelund. “This is equally, if not more, painful for Chinese companies.”
Market opening in some sectors
Chinese authorities have now stepped up high-level efforts to attract foreign investment.
Eskelund noted that Beijing’s recent visa-free policy for several EU countries has given leaders the flexibility to plan China trips a week in advance rather than two to three months in advance.
He added that Beijing’s expansion of tax exemption policies has also encouraged more international employees and their families to stay in China.
Cosmetics and food and beverage companies have benefited from China’s recent efforts to open its market, he said, noting that a record high 39% of respondents said the local market was fully open in their industry.
China has restricted the extent to which foreign companies can own or operate in certain industries. Beijing removes some banned categories every year using a “negative list.”
Record high skepticism
However, the EU Chamber and other business associations have said China can do much more to implement its 24 measures to improve the environment for foreign companies.
The Chamber’s latest survey found a historically large number of respondents reported worsening conditions:
- A record high showed they were skeptical about their growth potential in China over the next two years
- A record number of respondents believe that competitive pressure will intensify
- A record number doubt their profitability in China
- A record-breaking cost-cutting plan this year, primarily by reducing headcount and cutting marketing budgets
- A record number of respondents said they had missed opportunities in China due to regulatory hurdles, the size of which was more than half of their annual revenue
- a record low in anticipation that regulatory hurdles will decrease
“A comparison with previous years shows that many concerns about the predictability and visibility of the regulatory environment have actually remained the same,” Eskelund said. “These concerns remain broadly the same.”
“What’s happening now is that companies are starting to realize that some of these pressures that we’ve seen in the local market, be it from competition, be it from reduced demand, may be taking on a more permanent nature,” he said. “This is something that is starting to impact investment decisions and the way one thinks about the development of the local market.”
Source link
2024-05-10 00:30:54
www.cnbc.com
