China

Is the 'Golden Age' for Multinationals in China Over?


Are the good times over? That’s the question being asked by multinationals in China, according to a new survey of 552 companies released yesterday by the European Union Chamber of Commerce in China, together with Roland Berger Strategy Consultants.

“A new sober reality is developing, exemplified by a sense of pessimism that is becoming entrenched,” says the May 29 press release for the European Business in China Business Confidence Survey 2014. “Many European companies [are] wondering whether the “golden age” of MNCs in China is over.”

With the Chinese economy slowing and labor costs rising, as well as competition increasing from local companies, including state-owned ones, European businesses are feeling the pinch. Overall, 59 percent of those enterprises surveyed reported year-on-year revenue growth in 2013, down from 62 percent in 2012 and 75 percent the year before that.

Meanwhile, the proportion of companies making a profit dropped to 63 percent, down from 74 percent in 2010. “For the first time in the history of this survey, more companies noted that their Chinese profit margins were lower than their companies’ global averages than vice versa,” the release notes.

More than half of European companies say they believe foreign businesses are discriminated against in China. Worst affected were those operating in the legal, financial services, and transportation and logistics industries. Because of barriers to market access and regulatory constraints, European Chamber enterprises lost out on €21.3 billion ($29 billion) in revenue last year.

While China remains important, companies are scaling back their plans there, the survey showed. A bit more than one-fifth of companies now view it as their most important market, down from one-third just two years ago. Similarly, while 57 percent reported plans to expand their business in China, that was a drop from 86 percent saying that the year before. “It is clear that they are starting to reappraise China’s role. More modest expectations are being set, and investment plans are being revised downwards,” the survey report says.

European companies have mixed views on China’s ambitious plans to implement broad economic reforms, as outlined at the Third Plenum last November. Only 45 percent said they thought the reforms would be good for their business, with one-half pronouncing themselves unsure. “Reforms are generally viewed positively but not with the fervor one might have expected,” the report said.

Dexter_roberts
Roberts is Bloomberg Businessweek's Asia News Editor and China bureau chief. Follow him on Twitter @dtiffroberts.

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