Challenges abound, China still a pillar for EU firms

Higher investments in China will help European companies to offset tariff impacts arising from trade tensions and evade downside risks from global economic headwinds, said a top industry official from Europe.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, told China Daily in an exclusive interview on Wednesday that European businesses continued to be bullish on prospects in China and 22 percent of the respondents in a recent survey remained confident on sustained profitability.

As the Chinese market continues to open up, European companies will be more than keen to pursue growth opportunities, especially in areas where they have the same opportunities as their Chinese counterparts, even though some sectors are still being restricted, said Wuttke.

"There will be many opportunities in China's future development for the (European) companies that are already here and we see a generally open market in which they can operate."

To strengthen the resilience of the Chinese economy, Wuttke emphasized the necessity for the private sector to develop faster and have a larger market share in some areas that are now dominated by State-owned enterprises.

He stated that European companies are ready to deepen their presence in China, if they get a more level playing field and equal treatment.

The China-US trade tensions have posed several challenges to the global economy, and so also to European companies in China, with many seeing supply chains disrupted and others being forced to raise prices on goods sold both in China and the United States.

Some member companies of the European Union Chamber of Commerce have managed to mitigate effects by adapting strategies and supply chains, or by leveraging either their own global operations or highly diverse supply chains across other markets to shift production, Wuttke said.

European companies have also made other strategic changes in response to the trade tensions. While some have shifted investments out of the US or China, several have begun the process of changing suppliers.

"Interestingly, some of our member companies have mentioned that they were considering increasing their investment into China, essentially adopting the strategy of further on-shoring to avoid tariffs altogether," he said.

Wuttke thought the recent revisions to China's negative lists for foreign investment are an additional step in the country's ongoing opening up process. The removal or raising of equity caps for foreign investment in select areas of the Chinese economy has the potential to bring new opportunities for some European companies to enter the market or expand their footprint.

"For this opening-up to be meaningful, other deeper systemic and administrative reforms are also needed," he said.

In the chamber's Business Confidence Survey 2019, 26 percent of the respondents said they felt more welcome than when they first entered the Chinese market, up 4 percentage points on a yearly basis. When these companies were asked about the most significant reasons for their optimism, it was greater market access which was the most frequently cited reason.

Chu Shijia, head of the comprehensive department of the Ministry of Commerce, said that during the first five months of this year, investment from the European Union in China increased by 29.5 percent from a year earlier.

"The industrial chain is not fixed, but dynamic, which will evolve along with changes in international division of labor and the global industrial layout. With the development and further opening up of the science and technology sector in China, new domestic industrial chains have sprung up along with greater integration of the foreign industrial chains," said Chu.

Denis Depoux, head of Asia at consultancy firm Roland Berger, said earlier that: "The resilience of European businesses' commitment to the market in spite of the many challenges here shows the importance of China in many corporate strategies."

The European Union Chamber of Commerce's survey showed that 62 percent of respondents recognize Chinese firms as equals or more innovative compared with European companies.

According to the survey, besides manufacturing, production and financial services, innovation and research and development are the fields where European firms have recognized their potential in China. While the Chinese government's main goal in research and development is to make science and technology a driver of high-quality, sustainable economic growth, the private sector sees innovation as a means to enhance their competitive advantage, both domestically and in international markets.