China is actively seeking foreign investment to boost its slowing growth, but concerns about the sluggish economy are impacting company plans to expand their businesses in the country. According to an annual survey of over 500 European companies, the slowing economy has become the primary worry for respondents.
The survey, conducted by the European Chamber of Commerce in China, revealed that while China remains an attractive investment destination, only 42% of companies are considering expanding their operations in the country this year, marking the lowest percentage on record.
Business confidence is at its lowest, with companies expressing pessimism about growth and profitability. The concerns are exacerbated by existing complaints about regulations favoring Chinese competitors and creating uncertainty for businesses.
President of the European Chamber, Jens Eskelund, noted that economic pressures in the local market, such as competition and low demand, are becoming more permanent, influencing investment decisions.
The Chinese government is implementing programs to boost consumer spending, but weak job market conditions are dampening confidence. While GDP growth was higher than expected at 5.3% in the first quarter, much of it stemmed from government spending on infrastructure and investments.
Intense price competition in industries like solar power panels and electric cars has led to overcapacity and squeezed profits for many companies. A significant portion of respondents reported operating in the red in 2023.
Nearly 40% of companies are considering relocating future investments out of China, with Southeast Asia and Europe being top choices. Despite this, around 60% are maintaining their investment plans for China, albeit at a lower rate compared to previous years.
The survey indicated a decline in optimism among companies regarding business and profit growth. More than half of the companies are planning to cut costs in China this year, with a quarter intending to reduce staff sizes, adding pressure to the job market.
The report concluded that China's appeal as a top investment destination is diminishing, and without improvements to the business environment, companies will seek opportunities in other markets perceived as offering more reliability and transparency.
