Economic slowdown is major
hurdle to European business

The long-drawn-out Chinese economic slowdown remains the top challenge for European business, although more than half of European companies remain optimistic about their growth prospects, said a survey released on Wednesday.

The study showed that the Chinese economy is facing a major correction, making it necessary for the government to discard its 'old toolbox' of high, fixed-asset investments and export-driven growth.

The new leadership has made clear its reform vision to move the economy to the 'new normal', an era that will be characterized by a lower, but more qualitative economic growth pattern.

"But the 'new toolbox' for this qualitative growth is still to be put in place, meaning that, while the growth pattern has already slowed, the shift up the value chain to more quality growth has yet to be realized. The transition period will be difficult," said Joerg Wuttke, president of the European Union Chamber of Commerce in China.

Some companies are now adjusting their strategies in China to the changing economic situation. The survey said that pessimism about growth and profitability has made European businesses cut back, particularly through redundancy with 39 percent of responding companies planning to slash costs — a large jump from 24 percent last year — with most planning lay-offs.

The Business Confidence Survey 2015 was co-conducted by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

The pain brought by the economic slowdown has hit China veterans hardest, that is, European companies operating in China for more than 10 years, rather than newcomers, European companies operating in China for less than five years, the survey said.

While on average 58 percent of European companies are optimistic about growth, 76 percent that have operated for less than five years in China are positive, the survey said.

Wuttke said longer established companies come mainly from manufacturing but now China is facing overcapacity. Newcomers, who have entered areas which didn’t exist five years ago, are, in a sense, catering to new China.

The survey said most European companies are looking forward to China's reform agenda, and applauds the anti-corruption campaign, but they would want more improvement in legitimatize the environment, administrative issues and discretionary enforcement of regulations.

In particular, a better implementation of rule of law is seen as the top driver for China's economic development going forward, Wuttke said.

Xu Hongcai, a senior economist at the China Center for International Economic Exchanges, a government think tank, said although China’s economic is slowing down, ODI and FDI are both growing quickly this year and the Road and Belt Initiative is also inspiring, so the economy in future has great potential.

Xu said that in the past two years, after the Third Plenum of the 18th Central Committee of Communist Party of China in 2013, there has been great effort to streamline administration and delegate power to the lower levels, and thousands of powers have been delegated.

"The pace of reform in the past two years is faster than that of the 10 years before," he said.

The survey also said innovation will be one of the most critical drivers needed to move the Chinese economy up the value chain.

More than two thirds of European companies that engage in research and development do not have centers in China, and those that do still tend to use them first and foremost for product localization. So it is also important for China to take measures to attract and retain more international talent.