European companies begin to consider departure from China

More than one in five European company based in China plans to turn away because of rising labor costs, increased competition from Chinese companies and a legal framework considered discriminatory, according to a survey released Tuesday.

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“China is a strategic market increasingly important for European companies”, but “22% agreed that they thought about redirecting their investments from China to other markets,” according to a survey by the European Chamber of Commerce in China.

While 78% of these companies are optimistic about growth of their operations in China over the next two years, only 36% expect a favorable trend in profitability, according to this study in which 557 companies responded members.

To grow in China, 52% of companies plan to expand to regions of China where they are not yet established, particularly in the interior of the country where wages are lower and where some provinces provide incentives to foreign companies.

The three main concerns of European companies in China are the country’s economic slowdown, for 65% of them, the increase in labor costs (63%), and the global economic downturn (62%), according to the survey.

Regarding the evolution of labor costs, 59% of respondents say they are pessimistic for the near future, a proportion that rises to 75% for those located in the delta of the Pearl Rivers (the triangle bounded by Canton, Hong Kong and Macao) in the south.

The salaries of private sector employees in China rose 12.3% last year after deducting inflation, reported the National Bureau of Statistics on Tuesday.

Competitiveness of local enterprises has also increased: “The three main areas where Chinese companies are seen as the most competitive are prices, marketing and sales, as well as the reputation of their brands, indicating that competition is increasing,” according to the Chamber of Commerce of the EU in China.

According to their European counterparts, Chinese SOEs have further improved their relations with the government.

European companies regret the lack of reforms to guarantee them greater access to Chinese market. They also feel that the law does not always apply as rigorously as Chinese companies themselves, for example in terms of environmental protection.

“When we look at the regulatory framework, we find that little progress has been made,” lamented President of the Chamber, Davide Cucino, on the news conference.

“One in two businesses are missing opportunities (in the Chinese market) because of regulatory barriers” that favor Chinese companies, he added.

While costs are rising, “we must at least be able to operate in a fair enough point of view of competition, but most companies think it is not,” said Cucino.

Three weeks ago in Brussels, EU Trade Commissioner Karel de Gucht said the EU would step up its strike capability against the “state capitalism” in Beijing, which protects domestic firms.

Outside of China, “there are other markets that are opening around the world,” said Tuesday the president of the European Chamber of Commerce.