European Business in China Performing Well in a Competitive Environment Amid Regulatory Concerns

European companies in China demonstrated strong overall growth in 2010, but have growing concerns over rising challenges in the regulatory environment, according to the European Chamber Business Confidence Survey 2011, released today by the European Union Chamber of Commerce in China and Roland Berger Strategy Consultants.

China is increasingly regarded as a strategic market for European companies, with 78% registering a significant rise in revenue last year and 71% reporting that net profit has risen. This is in the face of growing competition from domestic companies, which are catching up with their overseas counterparts in areas once perceived as the stronghold of Foreign-Invested Enterprises (FIEs).

In such a competitive environment, the need for transparency and well-regulated markets becomes increasingly important. Survey respondents also perceived government policies have become increasingly unfair for FIEs in China over the past two years. European industry expressed greater optimism regarding regulators’ willingness to make changes in the spirit of the World Trade Organisation Agreement, although many companies felt that actual implementation continues to lag. This year, the vast majority of survey respondents named ‘rule of law and transparent policy-making and implementation’ as a key driver for China's economic performance in the coming years.

Davide Cucino, President of the European Chamber commented, “European industry has invested heavily in China and in doing so, is well-positioned to contribute to China’s aim to switch to a more balanced economic growth model, through providing high-tech, high-quality and green products and technologies, as well as vast strengths in the services industry. We are expecting more opening in these sectors, as indicated in the 12th Five-Year Plan.

Mr. Cucino added, “However, in order for European companies to continue contributing, the right business environment is required. We do not ask for preferential treatment, but simply equal treatment and an open market access environment. With concerns over a perceived unfair playing field and regulatory environment intensifying, questions are raised about China’s claim to be an equal opportunity market and about the attractiveness of China in the longer term.”

Charles-Edouard Bouée, Asia President of Roland Berger Strategy Consultants, said, “European industry is facing increased competition in China from both international and domestic competitors. In particular, vast improvements have been seen from local competitors in brand recognition, marketing and sales capability, and product quality. In order for European companies to stay competitive in China, they need to seek to understand what local clients and consumers demand and continue to differentiate their products and services. To that end, this report is designed to help European industry gain insights that support their strategic planning and tactical decision-making."

The European Chamber Business Confidence Survey 2011 is again produced in partnership with Roland Berger Strategy Consultants and draws on feedback from nearly 600 European companies – the highest participation rate ever for this annual publication.