EU Chamber sees members cutting jobs as China economy slows

China’s stuttering economic growth is translating into gloom among European companies operating here, as the annual survey by the EU Chamber of Commerce showed 39 per cent of 541 respondents were planning to cut costs, with most of them planning job cuts.

According to the survey, China’s economy has room to grow. More than half of European companies are optimistic about their growth prospects, though this number has dropped 10 points year-on-year. And nearly a quarter are pessimistic about their profitability outlook.

The Chinese government is aiming for 7 per cent growth this year, which would be the slowest in 25 years. “European companies continue to view better implementation of the rule of law as the top driver for China’s economic development going forward,” said chamber president Jörg Wuttke. “However, they are unconvinced to what extent this is forthcoming.

“Disappointment in China’s reform agenda is palpable within the international business community, as regulatory barriers and market access issues have not sufficiently been dealt with.”

Companies planning to expand their business has dropped 30 percentage points since 2013, to 56 per cent from 86 per cent. Mr Wuttke spoke of a “paradigm shift” for the Chinese economy, requiring the government to get rid of its obsession with high, fixed-asset investments and export- driven growth, which created unprecedented overcapacity levels and debt burden in many sectors.

“There is a sense of urgency that reforms are needed . . . The old toolbox is not working as well as it used to and the new toolbox is not yet in place,” said Mr Wuttke. “We don’t need propaganda, we don’t need campaigns. We need substantial change.”

All difficulties aside, Mr Wuttke said companies were staying here. "If China slows down, there's no other place to compensate," he said, adding that 61 per cent of companies rank China as one of their top three investment destinations.

“European companies are not dropping in China. It’s just too big and too important. You just have to stay and be smart about the slowdown. We see, actually, that they are diversifying globally, by making new investments in other places,” said MrWuttke.

There were some lively exchanges about the slowness of Chinese internet speeds, which Mr Wuttke said was now interfering with business and with innovation. Some 60 per cent of members said the Great Firewall of China was lowering their ability to function normally. “The other area that interferes with R&D is the internet, because the speed is not very good and restrictions are having an impact,” he said.

When he was asked if he had been in communication with the Beijing authorities about censorship and email blocking, he said it was “simply not fitting to be five times slower than South Korea”.

The chamber president also reiterated his belief that Chinese firms get better treatment from the regulators than their European counterparts in areas like government procurement. “Government procurement is really a very sad story. Little is open and little has changed . . . it is like playing a soccer match against a team where the ref is wearing the opposing team’s colours,” said Mr Wuttke.