European businesses have never been this gloomy about China

European Business Confidence in China Hits Record Low Amid Slow Growth and Geopolitical Worries

The European business community’s optimism about China has plummeted to its lowest point on record, even worse than during the height of the pandemic. This decline in sentiment is attributed to slower economic growth and escalating geopolitical concerns.

According to the annual survey conducted by the EU Chamber of Commerce in China, a staggering 73% of respondents reported that doing business in China has become increasingly challenging over the past year. This marks the fourth consecutive year of deteriorating business conditions in the Asian country. The survey, which has been published since 2004, gathered insights from 503 respondents in January and February.

Jens Eskelund, the president of the chamber, highlighted that companies are facing significant pressure and are feeling pessimistic about the business environment in China. Despite these challenges, many businesses find it necessary to maintain a presence in the Chinese market due to compelling supply chain opportunities.

However, the survey indicates that business confidence is far from being restored. Eskelund emphasized that uncertainties continue to plague the business landscape in China, preventing any notable improvement in sentiment.

The report revealed that foreign businesses in China have encountered mounting obstacles since the pandemic disrupted global supply chains in 2022. While local brands have gained competitiveness, overall consumer demand remains lackluster, partly due to a real estate downturn and job market uncertainties.

One of the hardest-hit sectors is cosmetics, which reported a 45% decline in revenue in 2024 compared to the previous year. This marks only the second revenue drop in the past decade for the industry. In contrast, aviation and aerospace industries noted that doing business in China had become easier.

The diminishing growth rate in China has eroded its appeal as a business destination compared to other markets. Only 12% of respondents expressed optimism about profitability in China over the next two years, the lowest on record. Additionally, the number of businesses planning to expand in China in the coming year hit a record low of 38%.

Despite Beijing’s efforts to enhance conditions for foreign investment, numerous challenges persist. A significant 63% of respondents reported missing business opportunities in China due to market access restrictions and regulatory hurdles. Medical device companies highlighted discrimination against European firms in public procurement practices.

The widespread pessimism among European businesses in China mirrors a similar sentiment among U.S. companies operating in the country. A recent survey of American businesses indicated a growing inclination to relocate manufacturing or sourcing activities due to unfavorable conditions.

Looking ahead, 53% of respondents expressed willingness to increase investments in China if measures are taken to improve market access. Supply chain competition remains a key factor, with China’s dominance attributed to its ability to offer quality components at competitive prices.

When discussing supply chain diversification, a notable portion of respondents indicated a shift towards onshoring to China to meet localization requirements and access the domestic market more effectively. Additionally, nearly half of the respondents reported that their Chinese suppliers were relocating operations to other markets.

In a bid to strengthen bilateral ties, Chinese and EU leaders are gearing up for a summit in Beijing in July. This meeting comes at a critical juncture as both parties seek to enhance their relationship amidst escalating U.S. tariffs. The EU stands as China’s second-largest trading partner within the region, underscoring the significance of their economic ties.