European companies in China are under pressure from slower growth, overcapacity

BEIJING — European corporations in China are discovering it tougher to earn a living within the nation as development slows and overcapacity pressures enhance, in keeping with a survey launched Friday by the EU Chamber of Commerce in China.

Within the metropolis of Shanghai, enterprise members even reported delays in getting paid because it turned tougher to implement contracts versus the prior yr, in keeping with chapter head Carlo D’Andrea.

“State-owned enterprises, they postponed funds and they’re utilizing this with a purpose to get some defacto loans from corporations, particularly from small, medium enterprise,” D’Andrea mentioned, citing members’ feedback.

China’s development has slowed lately amid geopolitical tensions. A hunch in the actual property sector, which has shut ties to native authorities funds, has additionally dragged down the financial system.

Solely 30% of EU Chamber survey respondents mentioned their revenue margins had been larger in China than their firm’s worldwide common — an eight-year low.

Again in 2016, simply 24% of respondents mentioned their revenue margins had been higher in China than they had been globally, the report mentioned.

That mirrored a crash within the Chinese language inventory market in the summertime of 2015, alongside a slowdown in the actual property market on the time, EU Chamber President Jens Eskelund identified to reporters.

He mentioned the present slowdown in Chinese language development had related cyclical facets, however there are questions on how lengthy and deep it will be this time.

The Chamber’s newest survey lined 529 respondents and was performed from mid-January to early February.

This yr’s questionnaire included a brand new query about whether or not members confronted difficulties in transferring dividends again to their headquarters. Whereas greater than 70% reported no points, 4% mentioned they had been unable to take action, and about one-fourth mentioned they skilled some difficulties or delays.

It was not instantly clear whether or not this was on account of a brand new regulatory stance or typical tax audit necessities.

China’s financial system is now far greater than it was in 2015 and 2016. Commerce tensions with the U.S. have additionally escalated lately, with Beijing doubling down on manufacturing to bolster tech self-sufficiency.

“Our members noticed to some extent that their potential to develop and make revenue within the Chinese language market — [the] correlation with the GDP determine is changing into weaker,” Eskelund mentioned.

“What’s essential to overseas corporations isn’t essentially form of a headline GDP determine, 5.3% or no matter, however the composition of GDP,” he mentioned. “You probably have a GDP determine that’s rising as a result of extra funding is being made into manufacturing capability, that’s not good for overseas corporations. However if in case you have a GDP that’s rising as a result of home demand is rising, then that could be a good factor.”

China’s Nationwide Bureau of Statistics is because of launch mounted asset funding, industrial manufacturing and retail gross sales for April subsequent Friday.

China’s emphasis on manufacturing, coupled with modest home demand, has led to rising world issues that overproduction will cut back revenue margins.

A couple of-third of EU Chamber survey respondents mentioned they noticed overcapacity of their trade within the final yr, and one other 10% anticipate to see it within the close to future.

The civil engineering, building and automotive industries had the very best share of respondents reporting overcapacity.

Greater than 70% of respondents mentioned overcapacity of their trade resulted in worth drops.

“This isn’t simply European corporations whining,” Eskelund mentioned. “That is equally, if no more painful, for Chinese language corporations.”

Chinese language authorities have in the meantime bolstered high-level efforts to draw overseas funding.

Eskelund famous how Beijing’s latest visa-free coverage for a number of EU nations has allowed executives the flexibleness to plan China journeys one week prematurely, as a substitute of two to a few months beforehand.

He added that Beijing’s extension of tax exemption insurance policies has additionally inspired extra worldwide employees and their households to remain in China.

Cosmetics and meals and beverage corporations have benefited from China’s latest efforts to open its market, he mentioned, noting {that a} file excessive of 39% of respondents mentioned the native market was totally open of their trade.

China has restricted the extent to which overseas companies can personal or function in sure industries. Beijing removes some off-limits classes every year through a “damaging record.”

Nevertheless, the EU Chamber and different enterprise organizations have mentioned that China can do rather more to implement its 24 measures for enhancing the surroundings for overseas corporations.

The Chamber’s newest survey discovered a traditionally giant variety of respondents mentioned situations had been worsening:

• a file excessive mentioned they had been skeptical about their development potential in China within the subsequent two years
• a file excessive of respondents anticipate aggressive stress to accentuate
• a file share doubt their profitability in China
• a file excessive plan to chop prices this yr, primarily by lowering headcount and trimming advertising budgets
• a file variety of respondents mentioned they missed alternatives in China on account of regulatory obstacles, the scale of which was equal to over half their annual income
• a file low in expectations that regulatory obstacles will lower

“If you examine to the earlier years we will see that a whole lot of the issues truly stay the identical concerning the predictability, the visibility of the regulatory surroundings,” Eskelund mentioned. “These issues just about stay the identical.”

“What is occurring now could be that corporations are starting to appreciate a few of these pressures that now we have seen within the native market, whether or not it is competitors, whether or not it is decrease demand, that they’re taking over maybe a extra everlasting nature,” he mentioned. “That’s one thing that’s starting to influence funding choices and the way in which the go about fascinated by creating the native market.”