European business confidence in China is at an all-time low, report says

HONG KONG — China must reprioritize economic growth and reforms and boost investor confidence by leveling the playing field for all companies in the country, a European business group said Wednesday.

With “business confidence now at an all-time low” over lagging domestic demand and overcapacity in certain industries, the annual European Business in China Position Paper called on China to open its economy and allow a more free market to determine resource allocation. It also recommended introducing policies to boost domestic demand.

Profit margins in China are at or below the global average for two-thirds of the companies surveyed earlier in the year, according to the paper published Wednesday by the European Chamber of Commerce in China.

In August, China filed a complaint with the World Trade Organization over European Union tariffs on electric vehicles made in China. It also launched anti-dumping and subsidies investigations of European dairy products, brandy and pork exports. The tit-for-tat actions have raised fears that a trade war may break out.

Many European businesses are deciding that the returns on investments in the world's second-largest economy are not worth the risks, due to issues including China's economic slowdown and a politicized business environment.

“For some European headquarters and shareholders, the risks of investing in China are beginning to outright the returns, a trend that will only intensify if key business concerns are left unaddressed,” Jens Eskelund, president of China’s European Union Chamber of Commerce, said in a message at the beginning of the paper.

The European Chamber’s paper proposes over 1,000 recommendations for China to resolve challenges and problems faced by European businesses operating in the country and boost investor confidence. Among them are calls for China to refrain from punishing companies for the actions of their home governments. Others include ensuring that policy packages for attracting foreign investment are followed by implementation, and refraining from “erratic policy shifts.”

The report also recommended that the EU proactively engage with China and keep its responses “measured and proportionate” when disagreements arise.