MNCs in China: End of the ‘golden age’?

European companies are losing confidence in China’s potential for their business as a “a new sober reality” permeates their thinking, according to the European Union Chamber of Commerce in China’s Business Confidence Survey for 2014. The annual survey presented the most pessimistic view of doing business in China, in the survey’s 10 year history. By Donald Urquhart

MNCs in China: End of the ‘golden age’?

European companies doing business in China are finding the market – once viewed as a near ‘saviour’ to lethargic growth at home – less attractive due to a host of problems ranging from a slowing domestic economy, rising labour costs, difficulties in attracting and retaining talent, lack of adherence to the rule of law and uneven regulatory enforcement and rise of Chinese domestic MNCs, amongst other factors.

“Business in China is already tough and it is getting tougher. European companies face a sober new reality from several persistent and deepening market challenges,” the report said.

Although the report’s authors note these challenges present no surprises, as they are the same ones identified as having the greatest impact last year, “the business outlook for growth and profitability suggests that these challenges are becoming entrenched and are here to stay.”

The survey, conducted by Roland Berger Strategy Consultants, with input from more than 550 European firms across a broad swath of business sectors, including manufacturers, retailers, financial companies and companies involved in transport, logistics and distribution, suggest the “golden days” of doing business in China are nearing the end.

The responses highlighted “an entrenched sense of pessimism, as persistent market challenges show little sign of abating. In turn, many firms are setting more modest expectations for revenue and profitability growth and are scaling back their investment plans for the Chinese marketplace,” said the survey’s authors. “However, implementation of meaningful reforms – in particular increased market access – would likely prompt a reversal of this trend,” they added.