European firms doubt China has a credible plan to turn the economy around, the Reuters lobby group warns

By Joe Cash

BEIJING (Reuters) – European firms in China doubt the government has a credible plan to boost demand in the ailing economy or will carry out long-promised reforms, dampening their appetite to invest in the country, a group said on Wednesday. European business lobby.

The European Union Chamber of Commerce in China said in the latest edition of its position paper that many of its more than 1,700 member companies are now coming to terms with the fact that the problems they face may have become permanent features rather than “growing pains” an emerging market.

“There is a feeling at corporate headquarters and among shareholders that the returns on investment in China are no longer commensurate with the risks they face,” the chamber said, noting that profit margins in China had shrunk for about two-thirds of its members by at or below the global average.

In 2023, EU foreign direct investment flows to China fell 29 percent from the previous year to 6.4 billion euros ($7.06 billion), European Commission data shows.

“With many other markets offering greater predictability and legal certainty, along with the same return on investment, continuing to invest at previous levels in the Chinese market simply becomes harder to justify,” the chamber said.

European firms must contend with Chinese competitors receiving unfair subsidies, a highly politicized business environment, President Xi Jinping’s increased focus on national security and perennial market access and regulatory barriers, the chamber said.

But the “central concern” was China’s economic slowdown.

After a dismal second quarter, policymakers signaled they were ready to deviate from their playbook of investing funds in infrastructure, instead targeting fresh stimulus to households.

But economists are still waiting for more concrete plans to revive the $19 trillion economy, beyond a pledge by the ruling Communist Party’s top decision-making body to do so and a subsidized consumer goods exchange scheme.

“It states the intention to ‘intensify efforts to develop a complete domestic demand system’, but the document contains nothing concrete about how consumption will be stimulated,” the chamber said, referring to a plan drawn up in following the so-called party. the third plenary session in July.

“Given that the total budgeted amount comes to about 210 yuan ($29.52) per capita, of which only a portion will go to household consumers, this scheme alone is unlikely to significantly increase domestic consumption “, added the camera, emphasizing the fact that exchange program.

BASF, Maersk, Siemens and Volkswagen (ETR:) are among the chamber’s members.

(1 USD = 7.1133 renminbi, 0.9063 euros)