2021-05-31-中国欧盟商会-Business_Confidence_Survey_2021_63页_2mb

Summary of European Business in China Business Confidence Survey 2021

Core Content

The European Business in China Business Confidence Survey 2021 highlights the resilience and strategic adaptation of European companies operating in China amidst the challenges posed by the COVID-19 pandemic, regulatory hurdles, market access issues, technology transfer pressures, and increasing politicisation of business. Despite initial concerns and revenue declines, European firms have shown a commitment to maintaining and expanding their presence in China.

Main Points and Key Findings

1. Darkness Navigated

• Impact of the Pandemic: The pandemic posed unprecedented challenges, particularly due to business travel restrictions and supply chain disruptions.
  • Revenue Impact: Although revenue declined, the drop was less severe than anticipated, with 75% of respondents maintaining or increasing revenue.
  • Profitability: Three out of four companies reported positive EBIT, with 51% seeing higher EBIT margins in China than their worldwide average.
  • Consumer Behavior: Chinese consumers redirected disposable income to B2C sectors like retail and automotive, leading to strong revenue growth in these areas.

2. Investors Onshoring, Strengthening Positions

• Commitment to China: European companies are more committed to the China market than ever before.
  • Low Desire to Leave: Only 9% of companies consider moving investments out of China, the lowest on record.
  • JV Share Increases: 27% of companies increased their share in joint ventures (JVs), with 18% taking a controlling share and 2% buying out their partners to form WFOEs.
  • Supply Chain Onshoring: Over a quarter of manufacturers are onshoring supply chains, five times more than offshoring.

3. Reform Efforts Lagged

• Market Access: While improving, it remains challenging with 45% of companies still facing barriers.
  • Direct vs. Indirect Barriers: 12% reported direct barriers (e.g., negative lists), and 33% reported indirect ones (e.g., opaque licensing procedures).
• Unequal Treatment: 44% of companies still perceive an unlevel playing field, with 46% seeing unequal treatment.
• SOE Reform: SOE reform has not met expectations, with 48% of companies expecting SOEs to gain more opportunities.
• Technology Transfers: 16% of companies still face compelled technology transfers, despite the Foreign Investment Law.
• Regulatory Reform: Regulatory obstacles have not changed significantly, and some new rules (e.g., CII and autonomous technology) are creating new challenges.
• IPR Protection: IPR infringements slightly increased but remain lower than historical averages. 50% of respondents found IPR enforcement to be adequate or excellent for the first time.

4. HR Challenges Surge and Travel Restrictions

• Foreign Worker Depletion: Foreign worker numbers have nosedived, with 73% of companies affected by travel restrictions.
• Talent Retention: Many stranded experts are giving up on returning, risking loss of expertise.
• Tax Reform: Individual Income Tax reforms are discouraging foreign assignments, impacting talent retention.

5. Politicisation of Business

• Political Tensions: 41% of companies reported an increasingly politicised environment.
• Sources of Pressure: Party/state sources and international media are the main drivers of politicisation.
• Long-term Outlook: Barely anyone expects political pressure to decrease in the coming year.

6. Carbon Neutrality

• Environmental Commitment: European companies are prioritising decarbonisation, with 55% expecting to reach carbon neutrality by 2030.
• Strategies: Companies are investing in green technologies and rethinking supply chains to align with China's 2060 carbon neutrality goal.

7. RCEP Reshaping Regional Strategies

• RCEP Impact: While some companies see positive impacts, most remain uncertain.
• Supply Chain Adjustments: 38% of companies noted that suppliers or customers relocated.
• Trade Dynamics: Exports may rise, and imports can help reduce costs.

Key Information

• Survey Details: The survey was conducted by the European Union Chamber of Commerce in China and included 585 respondents.
• Survey Trends: European companies are increasing their investments and onshoring supply chains.
• Industry Performance:
  • Winners: B2C sectors (retail, automotive) showed strong revenue growth.
  • Losers: Aerospace, legal, and construction industries faced significant revenue drops.
• Strategic Shifts: Companies are focusing on China as a strategic hub rather than a geographic extension.
• Challenges Ahead: Long-standing regulatory issues, unequal treatment, and politicisation continue to challenge European operations.

Conclusion

European companies in China have demonstrated resilience and strategic adaptability in the face of the pandemic and other challenges. While revenue was down, profitability remained stable, and optimism about growth surged. However, long-term challenges such as unequal treatment, regulatory hurdles, and politicisation remain significant. The onshoring of supply chains and increased investment in JVs reflect a commitment to the China market, but success will depend on ongoing reform efforts and effective management of political and regulatory risks.