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1、CMYCMMYCYCMYKBCS2024_Final print.pdf 1 2024/5/7 08:37 European Union Chamber of Commerce in China The information contained herein is based on input and analysis from January to April 2024.The information is provided for informational purposes only and should not be construed as business or legal ad
2、vice on any specific facts or circumstances.No users of this report should act or refrain from acting on the basis of any content included without seeking appropriate professional advice.The European Union Chamber of Commerce in China does not assume any legal liability or responsibility for the acc
3、uracy and completeness of the information provided in the report.2024 European Union Chamber of Commerce in China,all rights reserved.This study may not be reproduced either in part or in full without prior written consent of the European Union Chamber of Commerce in China.Cover image Harry Zhang,Eu
4、ropean Union Chamber of Commerce in China,all rights reserved.TABLE OF CONTENTS ExECUtivE SUmmary.11 CONCErNS OvEr ECONOmiC HEaDWiNDS iNtENSiFy aS 2023 FaLLS SHOrt OF ExPECtatiONS.31.1 Value of reinvestments decreasing.3 1.2 China no longer the obvious choice for all.4 1.3 Domestic players also shif
5、ting some investments out of China.7 2 WitH zErO-COviD NOW OvEr,ECONOmiC iSSUES arE NOW iN PLaiN SigHt.82.1 Zero-COVID no longer to blame for everything.8 2.2 Concern increases over Chinas economic slowdown.9 2.3 Macroeconomic factors also weighing on profit margins.10 2.4 Persistent weak demand exa
6、cerbating overcapacity and competition.11 2.5 Mild improvement in company revenues.13 2.6 Profitability takes a hit.14 3 BUSiNESSES rEviSE ExPECtatiONS:a NEgativE CyCLE iN tHE maKiNg.19 3.1 Record number report doing business in China became more difficult.19 3.2 Regulatory obstacles remain unresolv
7、ed.20 3.3 Complying with data regulations a concern for many.22 3.4 Lost business due to market access and regulatory barriers second highest on record.23 3.5 Enforcement of intellectual property rights(IPR)laws and regulations remains a concern.25 3.6 Fading optimism,negative outlook.27 3.7 Compani
8、es strategies to deal with slowing growth could add to Chinas economic woes.284 BUSiNESSES iNCrEaSiNgLy HavE tO NavigatE tHE POLitiCS OF ECONOmiC SECUrity.30 4.1 Politicisation of business continues.30 4.2 Businesses caught between conflicting legal regimes.30 4.3 Challenges stemming from politicise
9、d consumer demands increase.33 4.4 Calls for diversification intensifying,but it cannot be achieved overnight.34 5 PrOgrESS taKES timE aND EFFOrt,aND StiLL migHt NOt CUt it FOr SOmE.36 5.1 Improvement in perceptions about market opening.36 5.2 Even with greater market opening,many will think twice b
10、efore increasing investments.38 5.3 Decoupling between HQs and China operations further reduces efficiency and investor confidence.39 5.4 Fall in number of foreign employees an accelerant to decoupling.406 aNNEx.41 7 aBBrEviatiONS .448 aBOUt tHE SUrvEy mOtivatiON aND DESigN459 aBOUt rOLaND BErgEr461
11、0 aBOUt tHE EUrOPEaN UNiON CHamBEr OF COmmErCE iN CHiNa47European ChamberEuropean ChamberTABLE OF FIGURES Figure 1:One in three plan to cut value of reinvestment.3Figure 2:Chinas ranking as a top destination for investments at record low.4Figure 3:Attractiveness of China as an investment destination
12、 varies by sector.5Figure 4:China expansion plans lowest on record.5Figure 5:Increase in investments moving out of China.6Figure 6:Investments primarily rerouted towards ASEAN and Europe.6Figure 7:Nearly half witnessed Chinese partners shift investments out of China.7Figure 8:The impact of COVID-rel
13、ated factors on investment decisions is fading.9Figure 9:Chinas economic slowdown the major business challenge by far.10Figure 10:Macroeconomic factors having most significant adverse impact on profitability.10Figure 11:Over a third observe overcapacity in their industry.11Figure 12:Overcapacity obs
14、erved to varying degrees across different industries.11Figure 13:Overinvestment in production capacity and weak demand the main drivers of overcapacity.12Figure 14:Almost three quarters report deflation trends as a result of overcapacity.12Figure 15:Two fifths have lost market share to domestic comp
15、etitors.13Figure 16:More than a quarter report revenue decreases.13Figure 17:Revenue by industry:mixed results.14Figure 18:Net profits unchanged from 2022.15Figure 19:Only three in 10 report higher EBIT margins in China relative to rest of the world.15Figure 20:Importance of China for global profits
16、 uneven across industries.16Figure 21:More than two thirds report doing business in China became more difficult.19Figure 22:Doing business became more difficult across the board.20Figure 23:Ambiguity and unpredictability are top issues of regulatory environment.21Figure 24:Top regulatory issues vary
17、 by sector(part 1).22Figure 25:Top regulatory issues vary by sector(part 2).22Figure 26:Lack of important definitions and easily-triggered security assessments seen as main challenges.23Figure 27:Data regulations push localisation.23Figure 28:Over half miss business opportunities due to market acces
18、s and regulatory barriers.24European ChamberFigure 29:Prevalence of market access and regulatory barriers varies by sector.25Figure 30:Record number report missed opportunities equivalent to over half their annual revenue.25Figure 31:Almost half find enforcement of IPR laws and regulations inadequat
19、e.26Figure 32:Uptick in IPR infringement.26Figure 33:Almost half expect more regulatory obstacles.27 Figure 34:Business outlook increasingly gloomy(part 1).28Figure 35:Business outlook increasingly gloomy(part 2).28Figure 36:Over half plan to cut costs.29Figure 37:Over a quarter plan to cut costs by
20、 reducing headcount.29Figure 38:Majority report increased politicisation in last 12 months.30Figure 39:One fifth concerned by lack of ability to conduct independent third-party audits.31Figure 40:Almost half expect EUs CSRD to impact China operations.32Figure 41:44%expect EUs CSDDD to impact China o
21、perations.32Figure 42:Close to one quarter expect to be impacted by US export control policies.33Figure 43:Uptick in the rate of those reporting increasingly politicised consumer demands.33Figure 44:Three quarters have reviewed their supply chains in the last two years.34Figure 45:Europe,India and A
22、SEAN main beneficiaries of supply chain diversification.34Figure 46:Majority import critical components they cannot easily replace.35Figure 47:Almost half reported some market opening.36.Figure 48:Hard-earned progress on market access in some sectors.37Figure 49:Almost 40%perceive their industry to
23、be fully open to foreign business.38Figure 50:Y-o-y decrease in rate of those likely to increase investments if granted greater market access.38Figure 51:Four in 10 report decoupling.39Figure 52:HQ-China decoupling primarily impacts efficiency and investment plans.39Figure 53:Nearly 40%struggle to a
24、ttract or retain international talent.40Figure 54:Lack of willingness to relocate seen as key issue for attracting foreign talent.40Figure 55:More than seven in 10 decarbonising China operations.41Figure 56:Over half aim to decarbonise after 2030.42Figure 57:Decarbonising energy use employed as top
25、decarbonisation strategy.42Figure 58:Limited access to renewable energy stands out as top challenge.43European Chamber1In partnership withEXECUTIVE SUMMARYThe first year of Chinas reopening,following its self-imposed isolation during COVID-19,turned into one of growing uncertainty for European busin
26、esses operating in the country.The lifting of pandemic-related control measures initially provided companies with a sense of optimism,in no small part due to the ability to travel again,which allowed for re-engagement with head offices in Europe.However,it soon became evident there would be no rapid
27、 recovery.Chinas deeper structural issuesincluding sluggish demand,high levels of local government debt and the continued challenges in the real estate sectorwere going to continue affecting the prospects of both domestic and foreign companies,and the economy overall.Business confidence was further
28、eroded due to the mixed messages coming from the Chinese Government,as it sought to balance the tightening of security-related regulations with economic development.Although there has been a slight improvement in the overall sentiment about the politicisation of businesslargely attributable to the a
29、bandonment of Chinas zero-COVID policy at the beginning of 2023over half of respondents(55%,-4 percentage points(pp)year-on-year(y-o-y)still feel the business environment became more political over the past year.With the European Union(EU),the United States(US)and China all continuing to build out t
30、heir frameworks for risk management and strengthening economic security,businesses are facing increased pressure stemming from conflicting legal regimes and more politicised customer demands.While the increasing number of geopolitical risks businesses are having to deal with has seen a continuation
31、of the trend of diversifying and siloing supply chainsboth inside and outside Chinamany member companies are facing challenges trying to find alternative sources for certain components or equipment to make this possible.The proportion of respondents that now rank China as a top destination for both
32、present and future investments is currently the lowest on record(15%and 12%respectively).Companies are continuing to shift investments that were originally planned for China to alternative markets that are perceived to be more predictable,reliable and transparent.At the same time,the proportion of r
33、espondents planning to expand their current China operations in the year ahead fell to a record low level(42%,-6pp y-o-y).Many companies are also limiting reinvestment of their China profits,with 35%planning to reinvest less than their historical average in 2024.European companies are not the only o
34、nes voting with their feet:the percentage of respondents reporting that their Chinese suppliers or customers are moving their operations to other markets also increased(45%,+7pp y-o-y).As investment decisions are made in cycles and are not taken lightly,reversing them will not be possible overnight.
35、A positive finding in the survey is the notable increase in the proportion of respondents reporting market opening in their industry(45%,+9pp y-o-y).It is particularly encouraging that some of these developments are in areas where the European Chambers working groups have been advocating for change.
36、However,there has not been a corresponding uptick in the percentage of respondents likely to increase investments if they were to be granted greater market access.In fact,it dropped significantly(53%,-10pp y-o-y),an additional indication that investments may not be easily drawn back to China,even if
37、 certain issues are resolved.Overall revenues took a hit,with just under two fifths of respondents(39%,-2pp y-o-y)reporting increases in 2023 the lowest level on record.While over two thirds(69%)reported positive net profits,this proportion is unchanged from 2022,and thus represents the joint lowest
38、 since 2015.Net profit margins were adversely impacted by several challenges,with macroeconomic factors being the most cited(68%).In tandem,concerns over Chinas economic slowdown skyrocketed,with over half of respondents(55%,+19pp y-o-y)ranking it as a top-three challenge for business.While the pers
39、istence of weak demand weighed further on overall profitability,it also exacerbated the issue of overcapacity;over a third of respondents(36%)observed overcapacity in their respective industries in 2023,and two fifths(42%)reported deflation trends as a result.While economic challenges have become mo
40、re pronounced,regulatory obstacles remained largely unchanged in 2023,which has further negatively impacted the business outlook.Some concerns over specific issues,such as Chinas cyber and data regulations,or discrimination against foreign-invested enterprises in public procurement,were more pronoun
41、ced depending on the industry.In general,however,European businesses highlighted ambiguous rules and regulations(46%,+1pp y-o-y)and Chinas unpredictable legislative environment(35%,-1pp y-o-y)as their primary regulatory challenges,European Chamber2with the former ranking as the top challenge for the
42、 eighth consecutive year.The lack of a resolution for such long-standing business challenges has contributed to a further decrease in the proportion of respondents who are optimistic that Chinas regulatory environment will improve.Only 16%expect to see the number of regulatory obstacles reduced the
43、lowest level on record.The business outlook is also the least positive since the Chambers Business Confidence Survey(BCS)began,with over a quarter of respondents(26%,+17%y-o-y)pessimistic about their growth potential,and 44%(+18pp y-o-y)pessimistic about their profitability going forward.Accordingly
44、,European businesses are continuing to adjust their positions in the Chinese market.It is concerning that some of the strategies they are planning to adopt to tackle the continued economic slowdown have the potential to add to Chinas economic woes,setting a negative cycle in motion.Over half of resp
45、ondents(52%,+11pp y-o-y)are planning to cut costs,with a quarter of those planning to do so by reducing headcount,which will further increase the pressure on an already strained job market.A trend that needs to be closely monitored is that even when European companies China operations see opportunit
46、ies to expand,they are finding it increasingly difficult to get approval due to decoupling with their headquarters(HQs).Decoupling with HQs was reported by two fifths of respondents,and is manifesting itself in decreased communication and HQs having less understanding of on-the-ground realities,a dy
47、namic that is being exacerbated by the fact that more and more restrictions are being placed on access to reliable information about Chinas economy.The European Chamber previously warned of the adverse impact that this kind of decoupling can have in terms of both mutual understanding and,more broadl
48、y,confidence in the China market.1 It is of significant concern that the shifting of investments out of China may continue if meaningful improvements to the business environment are not made,and full access to legitimate and trustworthy sources of economic data is not restored.Without this,many CEOs
49、 will continue to feel they simply do not have the transparency and legal certainty they need to justify to their boards that there is a need to increaseor in some cases even maintaintheir investments.While 2023 was sobering for European business in China,it was also a year that opened up opportunit
50、ies for renewed engagements.The Chinese Government expressed its intent to improve the business environment through a slew of pledges,most notably the Opinions of the State Council on Further Optimising the Business Environment for Foreign Investment and Increasing the Attraction of Foreign Investme
51、nt and the Letter on Removing Measures Concerning Unreasonable and Differential Treatment to Domestic and Foreign Investment released by the Ministry of Commerce(MOFCOM).2&3 The European Chamber is encouraged by these steps and will continue to use them as a foundation to proactively engage with rel
52、evant Chinese stakeholders,to advocate for meaningful changes to the business environment.1 European Business in China Business Confidence Survey 2023,European Union Chamber of Commerce in China,21st June 2023,viewed 25th March 2024,p.2,2 国务院关于进一步优化外商投资环境 加大吸引外商投资力度的意见 Opinions of the State Council
53、on Further Optimising the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment,State Council,13th August 2023,viewed 25th March 2024,3 商务部办公厅关于请做好内外资不合理 差别待遇专项清理工作的函 Letter on Removing Measures Concerning Unreasonable and Differential Treatment to Domestic and Foreign
54、Investment,Ministry of Commerce,8th November 2023,viewed 25th March 2024,European Chamber3In partnership with1 CONCERNS OVER ECONOMIC HEADWINDS INTENSIFY AS 2023 FALLS SHORT OF EXPECTATIONSChinas reopening at the beginning of 2023 sparked expectations for a rapid,consumption-driven economic rebound.
55、However,confidence was quickly supplanted by uncertainty over the ability of Chinas economy to deliver.Mixed messaging from the Chinese Government,coupled with a lack of tangible action to boost the economy,diminished the appetite of foreign investors.4 Spending and investment decisions were curtail
56、ed as a result,and Chinas official data on foreign direct investment(FDI)showed a corresponding stark decline.5&6 1.1 value of reinvestments decreasingDecreases in FDI are oftenat least partiallyattributed to the fact that rather than relying on capital injections from their overseas HQs,many foreig
57、n-invested enterprises(FIEs)reinvest their profits in China to fund new projects or expand or strengthen existing operations.Indeed,75%of respondents are planning to reinvest some of their 2023 profits in China.However,over a third report they will reinvest less than their historical average.7 4 Eur
58、opean Business in China Position Paper 2023/2024,European Union Chamber of Commerce in China,20th September 2023,viewed 26th March 2024,pp.414,5 According to revised data on Chinas balance of payments from the State Administration of Foreign Exchange(SAFE),net foreign direct investment into the coun
59、try in 2023 dropped to the lowest level recorded in 23 years,and was less than a quarter of the 2022 figure.Qing,Na,Foreign Direct Investment Into China Plummets to 23-Year Low,Caixin,1st April 2024,viewed 3rd April 2024,6 While somewhat more positive,data from Chinas Ministry of Commerce(MOFCOM)sho
60、wed that the actual use of FDI in 2023 dropped 8%y-o-y.At Chinese yuan(CNY)1.1 trillion,the new actually utilised FDI was still the third highest on record.However,the sharp drop a year after 2022,which was marked by lockdowns that caused grave disruptions to business operations,also indicated that
61、investor confidence remained in decline despite Chinas reopening.New Foreign Investment in China Drops to Three-Year Low,Bloomberg,19th January 2024,viewed 1st April 2024,7 This is also reflected in the narrowing gap between the SAFEs balance of payments data and the MOFCOMs utilised FDI data.“This
62、gap has been narrowing since 2016 as foreign firms have repatriated profits rather than reinvesting their earnings or withdrawing investment from China.The exception to this pattern was 2021 when the pandemic stopped international capital flows(including multinational corporations profit repatriatio
63、n),boosting the data gap.”Lo,Chi,Explaining the plunge in Chinas foreign direct investment,BNP Paribas Asset Management,8th December 2023,viewed 26th March 2024,12%14%18%22%10%7%18%2024N=34725%16-25%11-15%5-10%5%Not profitable in ChinaDont plan to reinvest19%16%44%15%5%2024N=332Significantly moreSom
64、ewhat moreAbout the sameSomewhat lessSignificantly lessFigure 1:One in three plan to cut value of reinvestmentWhat percentage of your companys 2023 Mainland China profits doyou plan to reinvest in Mainland China?1)How does your planned reinvestment compare to your historical average?1)2)1)Excludes r
65、espondents that selected“Dont know”or“Other”2)Respondents who selected Dont know when responding to the question What percentage of your companys 2023 Mainland China profits do you plan to reinvest in Mainland China?were not given this questionEuropean Chamber41.2 China no longer the obvious choice
66、for allOnly 15%of respondents report that China is a top destination for their companys present investments(-4pp y-o-y),the lowest proportion ever recorded;8 and only 13%now rank China as a top destination for future investments(-3pp y-o-y)another historic low.At the same time,13%of respondents are
67、not planning any further investment in China,which was the highest proportion on record.Respondents in information technology and telecommunications(ICT)are among the least willing or likely to make future investments in China,with 22%reporting they have no plan to do so,and only 28%ranking China as
68、 a top-three destination for future investments.This reflects the adverse impact of various factorsincluding geopolitical tensions,stricter regulations on data management and Chinas push for technological self-relianceon those operating in the sector.While the proportion of those ranking China as at
69、 least a top-five investment destination was relatively low compared to other sectors,it was still more than half of respondents.This is attributable to the fact that certain ICT segmentsfor instance those supplying electronics to other industries,including the automotive sectorgenerally have a more
70、 positive outlook on their China business,as they face fewer barriers than those in more restricted areas such as 5G or cloud technology.For members operating in the pharmaceutical industry,Chinas allure as a top investment destination has been undermined primarily by foreign investment restrictions
71、 and the lack of effective intellectual property(IP)protection mechanisms.E.g.,Chinas Negative List for Foreign Investment restricts foreign investments in the fields of human stem cell and gene therapy;9 meanwhile,European pharmaceutical companies are also concerned about the lack of effective pate
72、nt term extensions and data protection for drugs that are new to the Chinese market.8 This question first featured in the BCS in 2010 and has been asked annually since.9 外商投资准入特别管理措施(负面清单)(2021年版)Special Administrative Measures(Negative List)for Foreign Investment Access(2021 Edition),National Devel
73、opment and Reform Commission,27th December 2021,viewed 26th March 2024,1)Excludes respondents that selected“Not applicable”6%7%8%9%10%10%7%8%9%7%6%7%13%8%9%13%6%5%5%6%4%6%4%7%6%15%19%16%9%9%12%10%11%8%7%9%9%9%38%41%43%15%17%14%18%15%14%15%15%18%17%33%24%21%40%37%36%41%42%44%41%43%40%40%21%21%23%18%2
74、0%19%26%23%19%15%2002320222021N=556 N=554 N=552 N=541 N=506 N=562 N=531 N=5852012N=585 N=581 N=5272024N=4873%202020016N=626Top destinationTop 3 destinationTop 5 destinationTop 10 destinationLower than top 10 destinationNo planned investment5%5%5%9%10%10%7%7%8%6%6%8%13%7%9%11%5%
75、5%5%4%5%6%12%19%16%9%8%11%11%11%10%7%9%12%11%46%44%48%18%17%17%18%15%14%12%15%20%17%30%23%20%39%40%39%44%45%46%44%47%39%40%20%20%20%17%17%19%27%21%16%13%2020201920183%20173%201620152014N=496 N=464 N=552 N=541 N=506 N=562 N=531 N=5852012N=585 N=576 N=5272024N=482200223%3%N=626Figure 2:Chin
76、as ranking as a top destination for investments at record low On a global scale,where does China rank as a destination for present and future investments for your company?1)PresentFutureEuropean Chamber5In partnership withOnly 42%of respondents(-6pp y-o-y)are planning to expand their China operation
77、s in 2024,the lowest level on record.10 At the same time,the proportion of respondents not considering expanding their operations in the coming year rose to the highest level on record,reaching 35%(+8pp y-o-y).The survey shows an uptick in the proportion of respondents reporting they have already sh
78、ifted,or taken the decision to shift,existing investments out of China.While 65%(-4pp y-o-y)are maintaining current investments in the country,this drops to 58%with regard to future investments.There is also a 4pp y-o-y increase in the proportion of respondents that have already shifted,or taken the
79、 decision to shift,future investments to other markets.10 This question first featured in the BCS in 2012 and has been asked annually since.17%2%12%12%12%11%22%16%6%12%12%13%33%18%10%10%10%5%10%6%18%7%17%9%10%60%10%8%2%15%9%26%11%17%11%12%29%13%18%30%30%20%19%21%17%15%12%17%33%26%18%35%12%13%18%40%4
80、4%56%39%32%21%50%28%37%53%53%41%47%25%36%40%20%12%14%7%26%12%11%11%12%6%7%25%10%Professional servicesFinancial services(incl.insurance)RetailIT and telecomMedical devicesFood and beveragePharma-ceuticalsLegalTransportationlogistics and distributionEducationCivil engineering and constructionUtilities
81、N=52N=43N=41MachineryN=34N=18N=18N=19N=17N=17N=17N=15N=12N=11N=10CosmeticsMaritimemanufacturingN=10N=10AutomotivePetro-chemicalsN=34Top destinationTop 3 destinationTop 5 destinationTop 10 destinationLower than top 10 destinationNo planned investment13%12%6%5%11%12%17%18%40%41%13%12%2024 Total2024 Se
82、lected industriesN=482N=378Figure 3:Attractiveness of China as an investment destination varies by sectorOn a global scale,where does China rank as a destination for future investments for your company?1)18%13%24%21%24%23%22%19%17%26%23%25%31%29%28%21%21%26%22%21%27%35%57%56%47%51%55%56%51%59%62%48%
83、42%2002320202014N=552N=541N=5062015N=531N=585N=626N=585N=620N=5622024N=529201620172018N=570YesNoUndecidedFigure 4:China expansion plans lowest on recordIs your company considering expanding current China operations in 2024?1)Industries selected are those for which there were at least 10 r
84、esponsesEuropean Chamber6For the second year in a row,the Association of Southeast Asian Nations(ASEAN)is the main beneficiary of Chinas fading appeal as a destination for foreign investment,with 21%of respondents having already moved,or reported they are considering moving,investments originally pl
85、anned for China to the region.Europe is the second most selected alternative destination for shifted,or potentially shifting,investments(19%),followed by India(15%)and North America(15%).69%65%13%15%7%8%11%13%20232024N=448N=378We have already shifted investments elsewhere/taken the decision to shift
86、 investments elsewhereWe are considering shifting investments elsewhereWe are postponing making any decisionsWe do not plan to shift our investments67%58%11%16%14%14%8%12%20232024N=404N=343Figure 5:Increase in investments moving out of ChinaIs your company considering shifting current or planned inv
87、estments in China to other markets?1)Current investments in ChinaFuture investments previously planned for China621%19%15%15%13%6%5%ASEANEuropeIndiaNorth AmericaAsia-Pacific other(excludes ASEAN,India,Japan,South Korea,Taiwan)Middle EastSouth America2%Africa1%Japan1%South Korea1%Taiwan1%OtherN=17715
88、%India15%North America13%Asia-Pacific other6%Middle East5%South America2%AfricaSouth Korea1%Japan21%Other1%Taiwan383427262310942211ASEAN19%Europe1%2023-24 p.p.2)-6%-2%0%2%-3%1%0%1%-2%-1%-3%-1%1%Figure 6:Investments primarily rerouted towards ASEAN and Europe Where have you shifted/are you considerin
89、g shifting investments to?1)2)1)Excludes respondents that selected Dont know1)Question only asked to respondents that reported that they have already shifted,or are considering shifting,China investments in response to question:Is your company shifting current or planned investments in China to othe
90、r markets?2)Multiple answers possible;percentages based on the total number of responsesEuropean Chamber7In partnership with1.3 Domestic players also shifting some investments out of ChinaThe percentage of respondents that say their Chinese partners are moving operations to other markets also increa
91、sed in 2023.Over a quarter of respondents(+8pp y-o-y)report this to be the case for Chinese customers,while 27%(+2pp y-o-y)say the same for domestic suppliers.N=52855%27%27%NoYes,some suppliers have shifted investments into other marketsYes,some customers have shifted investments into other markets2
92、91142140-7%2023-24 p.p.2%8%Figure 7:Nearly half witnessed Chinese partners shift investments out of China Has your company seen Chinese suppliers/customers moving their operations from China to other markets?1)1)Multiple answers possible;percentages based on the total number of responsesEuropean Cha
93、mber82 WITH ZERO-COVID OVER,ECONOMIC ISSUES ARE NOW IN PLAIN SIGHTNow Chinas stringent zero-COVID policy is a thing of the past,the impact that pandemic control measures exerted over business decisions has begun to fade.As the threat of sudden lockdowns or other disruptions to operations disappeared
94、,other issues impeding businesses development in the Chinese market have become more prominent.2.1 zero-COviD no longer to blame for everythingIn the BCS 2023,29%of respondents reported that they had shifted,or were considering shifting,investments because Chinas COVID-19 policies made business too
95、challenging,with this factor ranking the fifth most popular reason.11 To capture the lingering impact of Chinas pandemic-control measures on investment decisions,the BCS 2024 listed two options related to Chinas zero-COVID measures.It is clear that the impact of Chinas pandemic control measures has
96、diminished significantly.The related option selected by most respondents(“We already shifted investments because of disruption to business operations resulting from Chinas COVID-19 measures”),only ranked eighth overall(13%);and only 8%report having shifted investments because their companys decision
97、-makers were unable to visit China,ranking twelfth overall.Mitigating the impact of decoupling between China and third countries remained a key factor behind decisions or plans to shift investments,with 47%of respondents selecting this option(+3pp y-o-y).At the same time,there was a significant upti
98、ck(+16pp y-o-y)in the percentage of those indicating that seizing opportunities in other markets is their primary motivation.The 39%that have shifted,or are considering shifting,investments out of China because the business environment is too uncertain is further evidence that Chinas allure as a top
99、 investment destination is fading.Without meaningful improvements to the business environment,companies will continue to pursue opportunities in other markets that they perceive to offer more reliability,predictability and transparency.11 European Business in China Business Confidence Survey 2023,Eu
100、ropean Union Chamber of Commerce in China,21st June 2023,viewed 26th March 2024,pp.10-11,European Chamber9In partnership with2.2 Concern increases over Chinas economic slowdown The BCS 2024 shows a sharp rise(+19pp y-o-y)in the percentage of respondents that rank Chinas economic slowdown as a top-th
101、ree challenge to their future business in China.Notably,the proportion of those selecting it as the greatest challenge shot up 20pp y-o-y,to 39%in this years survey,reflecting just how quickly unease over the headwinds facing Chinas economy has spread.12 This was followed by the global economic slow
102、down,ranked as a top-three concern by 30%(+1pp y-o-y),and US-China tensions,ranked in the top-three by 19%of respondents(-5pp y-o-y).12 In the BCS 2023,19%of respondents ranked Chinas economic slowdown as the top business challenge,12%ranked it as top-two,and another 6%as top-three.European Business
103、 in China Business Confidence Survey 2023,European Union Chamber of Commerce,21st June 2023,viewed 26th March 2024,p.9,1)Question only asked to respondents that reported that they already have or are considering shifting China investments in response to the question:Is your company shifting current
104、or planned investments in China to other markets?2)Multiple answers possible;percentages based on the total number of responses3)“n/a”refers to a new option or an option that is different from the previous year47%To seize opportunities in other markets39%Chinas business environment is too uncertain2
105、6%To be closer to our customers25%To reduce costs23%To make our supply chains more resilient15%To take advantage of free trade agreements13%We already shifted investments because of disruption to business operations resulting fromChinas COVID-19 measures 11%To take advantage of government incentives
106、10%Due to the reputational risks of doing business in China10%Market opening in China was too little,too late8%We already shifted investments because decision-makers(chief executive,board members,etc.)were unable to,or found it prohibitively difficult,to visit China6%Because of perceived risks to st
107、aff(e.g.,uncertainty over national security-related regulations,arbitrary detentions)Other494941272647%62To mitigate the impact of decoupling between China and third countries10N=104 2023-24 p.p.2)3%16%-3%-1%-1%-8%-3%n/a5%-3%-11%n/an/an/aFigure 8:The impact of COVID-related factors on inv
108、estment decisions is fadingWhy have you shifted/are you considering shifting current or planned investments in China to other markets?1)2)3)2%European Chamber101)Respondents were asked to rank the top three challenges they had previously selected in response to the question“Please choose at least th
109、ree challenges your company perceives as having the greatest impact on your future business in China.”2)“n/a”refers to a new option or an option that is different from the previous year2.3 macroeconomic factors also weighing on profit marginsOne key element behind the growing concerns over Chinas ec
110、onomic slowdown is the impact that macroeconomic factors are already having on companies profitability,with a significant 68%of respondents reporting this to be the case.While the Chinese Government has already made pledges to improve weak domestic consumption,13 there has not yet been any noticeabl
111、e improvement for 57%,whose profitability is being negatively impacted by demand factors.13 Tan,Clement,China vows to restore and expand consumption to boost growth,CNBC,18th July 2023,viewed 27th March 2024,139%15%6%3%4%3%3%3%1%3%2%1%1%3%3%1%1%1%1%1%10%11%8%4%6%4%4%5%3%3%3%2%4%3%3%2%2%2%3%2%2%7%4%5
112、%7%4%4%4%3%6%5%4%5%3%2%4%2%4%2%3%2%Global economic slowdownUnited States(US)-China tensionsGeopolitical risks/regional conflictsCompetition from Chinese privately-owned enterprisesOvercapacityAmbiguous rules and regulationsDecouplingRising labour costsChinas self-sufficiency driveCompeting against n
113、on-compliant competitorsTalent attraction and retentionCompetition from Chinese state-owned enterprisesMarket access barriers and investment restrictionsChinas corporate debt crisisRising raw material/commodity pricesLicensing and certification rulesEconomic nationalismChinas local government debt c
114、risisChinas new data regulationsLow economic productivity in China55%30%19%15%14%12%11%11%10%10%10%8%8%8%7%6%6%6%5%5%5%Chinas economic slowdown1%#1#2#3N=529 2023-24 p.p.1)19%1%-5%n/a0%6%4%-4%0%3%-4%0%5%1%1%-2%1%-4%-6%-3%-1%Figure 9:Chinas economic slowdown the major business challenge by farPlease r
115、ank the top three business challenges that you selected as significant above1)2)26%26%10%16%9%5%42%31%39%39%15%21%27%21%19%39%33%71%57%58%10%16%10%9%9%10%9%8%2%Macroeconomic factorsDemand factorsCost factorsCompetitive factorsFinancing factorsRegulatory factorsSupply chain disruptionsN=529N=529N=529
116、2%N=5292%N=5293%2%N=5292%N=5292%Significant positive impactSomewhat positive impactLittle or no impactSomewhat negative impactSignificant negative impactFigure 10:Macroeconomic factors having most significant adverse impact on profitabilityPlease indicate the significance of the following factors af
117、fecting your companys net profit margin in China in 2023European Chamber11In partnership with2.4 Persistent weak demand exacerbating overcapacity and competitionWith domestic consumption slumping,overcapacity emerged as a more significant issue over the last year.14 Overall,36%of respondents observe
118、d overcapacity in their respective industry in 2023,and another 10%expect to see it in the near future.Overcapacity is reported by the highest proportion of respondents(69%)in civil engineering and construction.Members operating in the sector attribute this to Chinas real estate crash,which has resu
119、lted in a sharp decrease in new business.The automotive industry had the second highest proportion of respondents(62%)reporting overcapacity in their industry,which is in line with recent developments.In October 2023,the European Commission announced the launch of an anti-subsidy investigation into
120、electric vehicle imports from China.It came amid concerns that an oversupply of electric vehicle(EV)batteries in China may have played a major part in lowering prices,thus artificially increasing the competitive edge of Chinese EVs in the EU.15 1)Industries selected are those for which there were at
121、 least 10 responses14 Boullenois,Camille;Kratz,Agatha&Rosen,Daniel H.,Overcapacity at the Gate,Rhodium Group,26th March 2024,viewed 27th March 2024,15 Grieger,Gisela,EU anti-subsidy probe into electric vehicle imports from China,Think Tank of the European Parliament,18th October 2023,viewed 27th Mar
122、ch 2024,36%30%14%10%10%YesNoNot applicableDont knowNo,but we expect to see it in the near future1N=529Figure 11:Over a third observe overcapacity in their industryHave you observed overcapacity in your industry over the past year?7%29%38%9%10%20%20%5%53%22%19%8%9%18%4%4%10%8%5%14%14%15%15
123、%5%17%25%23%18%36%32%16%27%29%27%36%24%45%30%58%26%11%31%69%36%45%8%11%10%8%8%5%14%10%16%6%6%55%62%51%26%22%36%38%10%35%21%16%44%19%36%PetrochemicalsProfessional servicesFinancial services(including insurance)RetailIT and telecomMedical devicesFood and beveragePharmaceuticalsLegalTransportation,logi
124、stics and distributionEducationCivil engineering and constructionUtilitiesCosmeticsN=53N=452%N=41N=38N=37N=22N=21N=20N=20N=19N=19N=18N=16MachineryN=13N=11N=11Automotive2%YesNot applicableNo,but we expect to see it in the near futureDont knowNoFigure 12:Overcapacity observed to varying degrees across
125、 different industriesHave you observed overcapacity in your industry over the past year?1)European Chamber12Three fifths of respondents that report overcapacity in their sector identify overinvestment in domestic production capacity as the main driver;half of respondents attribute this to the lack o
126、f domestic demand;and at 34%,the lack of overseas demand is seen as the third most significant contributing factor.1)Multiple answers possible;percentages based on the total number of responses2)Question only asked to respondents that reported they have observed overcapacity in their industry in res
127、ponse to the question:Have you observed overcapacity in your industry over the past year?More than 70%of respondents that observe overcapacity in their industry have seen price decreases as a result,with 42%saying that prices dropped significantly.16 1)Question only asked to respondents that reporte
128、d that they have observed overcapacity in their industry in response to question:Have you observed overcapacity in your industry over the past year?16 Data from the National Bureau of Statistics also indicates that producer prices for industrial products were in decline throughout 2023,decreasing 3%
129、overall compared to the previous year.Producer Price Index in the Industrial Sector for December 2023,National Bureau of Statistics of China,13th January 2024,viewed 27th March 2024,62%50%34%18%11%3%Lack of domestic demand for productsOverinvestment in domestic production capacityAvailability of che
130、ap creditGovernment subsidiesLack of overseas demand for products2Other7N=244Figure 13:Overinvestment in production capacity and weak demand the main drivers of overcapacityWhat do you think are the main drivers of overcapacity in your industry in China?1)2)42%29%19%10%NoYes,prices decrea
131、sed significantlyYes,prices decreased slightlyDont know461037124N=244Figure 14:Almost three quarters report deflation trends as a result of overcapacityHave you observed deflation trends in your industry as a result of overcapacity over the past year?1)European Chamber13In partnership withWith China
132、s domestic champions developing rapidly in recent years,competition for market share has sharpened in many sectors.17 Over 40%of respondents have already lost some market share to domestic competitors.If the interconnected issues of weak demand and overcapacity remain unaddressed,competitive pressur
133、e is likely to intensify further,which would be in line with the expectations of over 60%of respondents(see Figure 34).1)Excludes respondents that selected Dont know2.5 mild improvement in company revenuesRevenue increases were reported by 39%of respondents(-2pp y-o-y),the lowest level on record.18
134、While the proportion of those reporting a drop in their revenue(28%)was 2pp lower than in the previous year,it is still the second highest on record.1)Excludes respondents that selected“Not applicable”17 For instance,in the automotive sector,“in the Chinese domestic market in 2023,and for the first
135、time in decades,Chinese brands will surpass foreign brands(51%)and are predicted to reach a market share of 65%by 2030”.As the Global Automotive Market Recovers More Slowly Than Anticipated,China is Rapidly Emerging as an Industry Superpower,AlixPartners,27th June 2023,viewed 27th March 2024,18 This
136、 question first featured in the BCS in 2010 and has been asked annually since.N=43442%6%29%22%Yes,we have been losing market share to domestic competitorsYes,we have been losing market share to non-domestic/international competitorsYes,we have been gaining market shareNoFigure 15:Two fifths have los
137、t market share to domestic competitorsHas your market share changed in the past five years?1)4%3%5%4%5%8%10%6%5%12%9%10%12%10%7%8%12%16%7%20%22%16%18%23%29%25%35%33%26%28%32%33%24%30%33%37%39%40%36%43%36%39%47%46%39%32%44%32%30%41%36%22%23%17%15%16%19%13%11%10%22%9%9%20121%20113%1%202320223%20212020
138、20%N=262N=224N=452N=453N=199N=506N=546N=4992%N=588N=546N=588N=538202420162%201520142013N=493N=535Increased substantially(20%)Increased(5-20%)Remained the same(+/-5%)Decreased(5-20%)Decreased substantially(20%)Figure 16:More than a quarter report revenue decreasesHow did your companys tota
139、l 2023 revenue in Mainland China evolve compared to 2022?1)European Chamber14At the sectoral level,more respondents reported revenue decreases rather than increases in transportation,logistics and distribution,civil engineering and construction,maritime,education,legal and ICT.Respondents in transpo
140、rtation,and logistics and distribution attributed the drop in their revenue primarily to a decline in foreign trade volumes in 2023,19 highlighting that logistics providers are particularly susceptible to fluctuations in demand.Revenues in the civil engineering and construction industry suffered due
141、 to an overall stagnation in construction,due to the dire state of the real estate industry.20 Members operating in the sector also highlighted that as the Chinese construction market is largely dominated by state-owned players,accessing projects is becoming increasingly difficult.21 For those direc
142、tly in the business of construction or construction materials,a 2023 policy shift,which turned the focus away from the construction of new buildings towards high-quality renovation or repurposing of existing buildingswith the aim of making them greener,smarter and saferalso had a bearing on revenues
143、.22 There are also demand-side challenges,stemming primarily from a lack of understanding of the value of such upgrading projects,which makes it difficult to sell them to consumers at a higher price point,especially at a time when consumers are generally more cautious about their spending.1)Industri
144、es selected are those for which there were at least 10 responses2.6 Profitability takes a hitOverall,European companies profitability in China remained at the same level as 2022.Almost 70%recorded positive earnings before interest and tax(EBIT)with another 16%breaking even.The percentage of those in
145、 the red(15%)stayed at the highest level recorded since 2015 for the second consecutive year.19 According to the World Trade Organization(WTO),the volume of global trade in goods fell 0.5%year-on-year in the first half of 2023.While it projected a slight uptick0.8%for the whole year,this forecast wa
146、s partly explained by the low basis from Q4 in 2022,and the WTO highlighted that Chinas economic slowdown could negatively impact this projection.Global Trade Outlook and Statistics(Update:October 2023),World Trade Organization,October 2023,viewed 27th March 2023,20 By 2023,real estate starts had fa
147、llen more than 60%below pre-pandemic levels,while sales had also fallen.Hoyle,Henry&Jain-Chandra,Sonali,Chinas Real Estate Sector:Managing the Medium-Term Slowdown,International Monetary Fund,2nd February 2024,viewed 27th March 2024,21 In 2023,state-owned or state-backed developers occupied the top
148、six rankings based on home sales.Chinas state-owned developers dominate sales,land markets in 2023 surveys,Reuters,2nd January 2024,viewed 27th March 2024,22 Ji,Siqi,Chinas new real estate model to be built on 3 major projects,with cheaper property for urban migrants and young adults,SCMP,13th Novem
149、ber 2023,viewed 27th March 2024,11%10%8%6%5%6%21%25%13%6%18%7%17%40%10%19%19%20%14%15%26%33%21%31%25%29%35%36%33%20%30%21%21%40%41%44%16%28%53%38%50%47%29%43%25%40%30%30%44%25%32%26%42%28%5%6%12%18%18%7%17%30%19%14%5%5%9%11%5%7%8%2%AutomotivePetro-chemicalsProfessional servicesFinancial services(inc
150、l.insurance)RetailIT and telecomMedical devicesFood and beveragePharma-ceuticalsLegalTransportation,logistics and distributionEducationCivil engineering and constructionMachineryMaritimemanufacturingN=53N=43N=40N=37N=34N=19N=18N=19N=16N=16N=17N=17N=14N=12N=10N=10UtilitiesIncreased substantially(20%)
151、Increased(5-20%)Remained the same(+/-5%)Decreased(5-20%)Decreased substantially(20%)6%7%22%22%33%30%30%32%9%9%2024 Total2024 Selected industriesN=493N=375Figure 17:Revenue by industry:mixed resultsHow did your companys total 2023 revenue in Mainland China evolve compared to 2022?1)European Chamber15
152、In partnership withWhen asked to assess the importance of their companys China operations to global profits,only 30%reported higher margins in China than their companys worldwide average the lowest proportion in eight years.While there was a slight drop(34%,-2pp y-o-y)in the proportion of those repo
153、rting lower margins in China compared to their global average,it was still the second highest recorded since 2015.At the same time,37%(+4pp y-o-y)said their China EBIT margins were in line with their profits worldwide.1)Excludes respondents that selected“Not applicable”Almost two thirds of responden
154、ts in the legal industry reported that their China EBIT margins were lower than their companys worldwide average.This is in line with the finding about their revenues,with more respondents from the legal industry reporting decreases than increases in 2023 compared to 2022(see Figure 17).This was esp
155、ecially the case for legal firms providing services related to initial public offerings(IPOs)in Hong Kong or the US,with the relatively low number of Chinese IPOs in these markets weighing on their China profits too.23 23 In 2023,24 Chinese companies listed on US exchanges,raising United States doll
156、ar(USD)656 million in total in IPOs.This was higher than the 14 IPOs from 2022 that totaled USD 468 million,but far below the USD 12.6 billion raised in 2021 through 34 Chinese IPOs.Chinese Companies Listed on Major U.S.Stock Exchanges,U.S.-China Economic and Security Review Commission,8th January 2
157、024,viewed 27th March 2024,;Yu,Yifan,Chinas appetite for U.S.IPOs shows little sign of roaring back,Nikkei Asia,12th October 2023,viewed 27th March 2024,21%18%11%13%15%16%14%11%8%9%10%13%8%15%15%16%23%16%14%20%14%20%17%16%16%15%14%13%16%16%63%58%74%73%64%70%66%71%77%75%75%73%79%69%69%2001
158、92020202182009N=230N=390N=2622010N=452N=199N=506N=563N=532N=585N=626N=224N=620N=5692024201120122013N=529N=585PositiveBreakevenNegativeFigure 18:Net profits unchanged from 2022Please describe your companys earnings before interest and tax(EBIT)in Mainland China in 202334%30%29%34%33%36%35%
159、28%22%25%28%20%24%36%34%29%37%29%34%38%36%42%41%42%36%34%28%34%33%37%37%33%42%33%30%28%24%31%35%39%38%51%42%31%30%2000019N=262N=224N=450N=453N=199N=506N=563N=532N=411N=389N=436N=451N=433202420220N=388N=464Higher than company average worldwideSame as compan
160、y average worldwideLower than company average worldwideFigure 19:Only three in 10 report higher EBIT margins in China relative to rest of the worldHow did the EBIT margin of your companys Mainland China operations evolve compared to your companys worldwide average EBIT margin in 2023?1)European Cham
161、ber16Respondents in the ICT sector report that their 2023 China EBIT margins were at best in line with their global average;however,over half of respondents reported they were lower.Members attributed this to the combined impact of different factors,such as sharpening local competition,rising costs
162、for labour and research and development,and the slower than expected economic growth in 2023.1)Industries selected are those for which there were at least 10 responses34%34%37%35%30%30%2024 Total2024 selected industriesN=388N=27630%28%34%41%31%42%56%21%30%43%64%6%50%39%25%29%37%42%33%44%36%70%14%18%
163、50%30%30%47%37%22%27%25%43%43%18%44%20%MachineryAutomotivePetro-chemicalsProfessional servicesFinancial services(incl.insurance)RetailIT and telecomMedical devicesFood and beveragePharma-ceuticalsLegalTransportation,logistics and distributionCivil engineering and constructionN=46N=36N=38N=27N=26N=12
164、N=16N=14N=10N=14N=11N=16N=10Higher than company average worldwideSame as company average worldwideLower than company average worldwideFigure 20:Importance of China for global profits uneven across industriesHow did the EBIT margin of your companys Mainland China operations evolve compared to your co
165、mpanys worldwide average EBIT margin in 2023?1)European Chamber17In partnership withA NEGATIVE CYCLE IN THE MAKINGSENTIMENT ABOUT THE BUSINESS ENVIRONMENT FELL TO AN ALL TIME LOW,AS REGULATORY OBSTACLES REMAINED LARGELY UNRESOLVED IN 202368%reported that doing business had become more difficult the
166、highest percentage on record58%reported having missed business opportunities as a result of market access/regulatory barriersEUROPEAN BUSINESSES ARE INCREASINGLY WORRIED ABOUT THE CHINESE ECONOMY55%marked Chinas economic slowdown as a top-three business challenge(+19pp y-o-y)52%are planning to cut c
167、osts 26%plan to do so by reducing their headcountBusinesses are toning down expansion plans:42%said they are considering expanding their operations in China in 2024 the lowest level on record13%reported that they have already shifted,or taken the decision to shift,existing investments out of ChinaCO
168、MPANIES STRATEGIES TO ADJUST TO THESE REVISED EXPECTATIONS HAVE THE POTENTIAL TO ADD TO CHINAS ECONOMIC CHALLENGESOPTIMISM ABOUT THE FUTURE IS FADINGSteep drop in proportion of respondents(-23pp y-o-y)that are positive about their growth prospects in China44%expressed concerns about their proftabili
169、ty in China CMYCMMYCYCMYKBCS2024_graphic.pdf 1 2024/4/28 21:26European Chamber18SENTIMENT ABOUT THE BUSINESS ENVIRONMENT FELL TO AN ALL TIME LOW,AS REGULATORY OBSTACLES REMAINED LARGELY UNRESOLVED IN 202368%reported that doing business had become more difficult the highest percentage on record58%rep
170、orted having missed business opportunities as a result of market access/regulatory barriersEUROPEAN BUSINESSES ARE INCREASINGLY WORRIED ABOUT THE CHINESE ECONOMY55%marked Chinas economic slowdown as a top-three business challenge(+19pp y-o-y)52%are planning to cut costs 26%plan to do so by reducing
171、their headcountBusinesses are toning down expansion plans:42%said they are considering expanding their operations in China in 2024 the lowest level on record13%reported that they have already shifted,or taken the decision to shift,existing investments out of ChinaCOMPANIES STRATEGIES TO ADJUST TO TH
172、ESE REVISED EXPECTATIONS HAVE THE POTENTIAL TO ADD TO CHINAS ECONOMIC CHALLENGESOPTIMISM ABOUT THE FUTURE IS FADINGSteep drop in proportion of respondents(-23pp y-o-y)that are positive about their growth prospects in China44%expressed concerns about their proftability in China CMYCMMYCYCMYKBCS2024_g
173、raphic.pdf 1 2024/4/28 21:26European Chamber19In partnership with3.BUSINESSES REVISE EXPECTATIONS:A NEGATIVE CYCLE IN THE MAKINGRather than enjoying the anticipated rebound after a challenging 2022,many European firms found themselves struggling in 2023.With a host of long-standing regulatory obstac
174、les still unresolved,24 optimism about the prospect of Chinas regulatory environment improving hit a low point.The business outlook is the most pessimistic yet,with companies expectations for growth and profitability taking a hit,and concerns about competition intensifying.European businesses are re
175、vising their expectations of the Chinese market,and the strategies they are planning to adopt to deal with the projected economic slowdownsuch as cost-cuttinghave the potential to add to Chinas economic challenges,setting a negative cycle in motion.3.1 record number report doing business in China be
176、came more difficult Over two thirds of respondents(68%,+4pp y-o-y)report that doing business in China became more difficult in 2023,the highest proportion on record.25 Conversely,only 6%of respondents indicate that doing business became easier compared to 2022,the lowest level since 2016.Members in
177、the civil engineering and construction industry feel the playing field is now tilted even more in favour of domestic players,especially with competition increasing due to a decrease in construction activity amid Chinas property slump.The sector is already dominated by state-owned enterprises(SOEs)an
178、d foreign designers are further disadvantaged by their lack of access to state support,which for some is putting their survival in the Chinese market at risk.Notably,the construction industry had the highest proportion of respondents reporting overcapacity(see Figure 12)and the second highest report
179、ing revenue decreases(see Figure 17).24 The European Chambers Position Paper 2023/2024 contained a record-breaking 1,058 recommendationsmany of which have been included in the paper for several yearson how to address specific issues encountered by European businesses operating in China.European Busi
180、ness in China Position Paper 2023/2024,European Union Chamber of Commerce in China,20th September 2023,viewed 26th March 2024,25 This question first featured in the BCS in 2014 and has been asked annually since.51%56%49%48%53%49%47%60%64%68%41%38%45%44%40%42%43%30%29%26%8%6%6%8%7%9%10%10%8%6%2019202
181、0202220232021N=541N=5062015N=532N=585N=626N=585N=620N=5702024N=529201620172018N=570Business has become easierAbout the sameBusiness has become more difficultFigure 21:More than two thirds report doing business in China became more difficultHow has your industrys business environment changed over the
182、 past year?European Chamber20Four in five respondents in the medical devices industry reported that doing business had become more difficult over the past year.According to members operating in the industry,one of the reasons for this is the lengthy registration process,which can make some product l
183、aunches unfeasible in China.26 Another concern for members is the frequency of volume-based procurement tenders,which put pressure on bidders to cut costs while maintaining the quality of their products and services.Moreover,in a few provinces and cities,the actual procurement volume did not meet th
184、e contractually agreed volume.In other cases,hospitals asked for additional discounts after the minimum price had already been agreed upon,or delayed payments.Members in the legal industry report that compliance has increasingly become an issue for them.Foreign law firms are required to have two for
185、eign representatives,which is difficult to maintain at a time when the stock of cross-border investments and other projects between the EU and China is declining.Firms in China with a primary focus on IPO-related services for Hong Kong or the US,also saw their new businessalong with their revenuesde
186、cline.With fewer projects on the market,competition has become harder.Additionally,foreign law firms have had to adapt to comply with both EU and Chinese regulations on cross-border data flows,as their treatment of clients personal data is now subject to two different regulatory frameworks.1)Industr
187、ies selected are those for which there were at least 10 responses3.2 regulatory obstacles remain unresolvedAmbiguous rules and regulations rank as the top regulatory obstacle members faced for the eighth consecutive year,with the option selected by almost half of all respondents(46%,+1pp y-o-y)as a
188、top-three issue.26 Most imported medical devices need to obtain market approval in their country of origin before qualifying for registration in China,delaying market access by at least one year.Additionally,when medical devices that have already been approved by the National Medical Products Admini
189、stration(NMPA)are upgraded,companies need to apply for a registration modification.Unlike in most other economies,the NMPA has no separate,simplified pathway for modifying registrations.In fact,this procedure requires basically the same documentation and takes the same time as new registrations.Euro
190、pean Business in China Position Paper 2023/2024,European Union Chamber of Commerce in China,20th September 2023,viewed 25th March 2024,pp.241242,74%76%73%58%68%64%76%80%65%68%79%56%56%92%64%64%50%15%18%27%37%32%27%14%10%30%26%21%33%31%27%27%50%11%7%5%9%10%10%5%5%11%13%8%9%9%AutomotivePetro-chemicals
191、Professional servicesFinancial services(incl.insurance)RetailIT and telecomMedical devicesFood and beveragePharma-ceuticalsLegalTransportation,logistics and distributionEducationCivil engineering and constructionUtilitiesCosmeticsMaritimemanufacturingMachineryN=45N=41N=38N=37N=22N=21N=20N=20N=19N=19
192、N=18N=16N=13N=11N=11N=10N=53Business has become easierAbout the sameBusiness has become more difficult68%69%26%24%6%6%2024 Total2024 SelectedN=529N=414Figure 22:Doing business became more difficult across the boardHow has your industrys business environment changed over the past year?1)European Cham
193、ber21In partnership with1)Figures represent the proportion of respondents who rated each issue as their#1-3 most significant regulatory obstacle;percentages divided by the total respondentsWhile the significance of some challenges is almost universalsuch as the persistence of ambiguous rules and reg
194、ulations and market access constraintsothers are sector-specific.For example,licensing requirements/registration processes are less of an issue for those in machinery,automotive or ICT,but are a significant problem for those in medical devices and cosmetics.Members from the medical devices industry
195、report that one key challenge they face in this regard is that different industries have unique licensing requirements,which complicates their cross-function efforts.Furthermore,obtaining licences and completing registration are often time-consuming processes.For instance,receiving approval from the
196、 National Medical Products Administration(NMPA)for new products or changes to existing products often takes longer than planned,leading to delays in product launches that can hinder business operations and add significant costs.While cyber and data-related laws and regulations may not stand out as a
197、 concern for all sectors,they still rank as a top-five regulatory challenge for utilities,automotive and ICT,and as a top challenge for financial services.Members from the financial services industry report that as they work with large amounts of data,they are disproportionately impacted by related
198、regulations.At the same time,since the scope of important data for the financial sector is yet to be defined by the National Financial Regulatory Administration,it makes it difficult for companies to determine which data must pass a security assessment,as well as to predict how stringent the securit
199、y assessment requirements for the industry will be.Members also report concerns over a potential clash between data catalogues issued by different regulators,as some of the draft data catalogueswhich at the time of writing had not been made public but had been shared confidentially with certain peop
200、le in the industryseem to show discrepancies.As foreign players in financial services tend to be relatively small in China,the administrative burdens caused by unclear regulations pose a significant obstacle that could even threaten operations.N=52916%14%12%8%7%8%6%8%7%3%2%4%2%2%16%10%7%9%9%9%8%7%7%
201、6%3%3%3%14%11%8%8%10%7%10%6%6%8%4%2%3%3%2%Ambiguous rules and regulationsUnpredictable legislative environmentMarket access barriers and investment restrictionsDiscretionary enforcement of rules and regulationsAdministrative issues(e.g.,tax-related matters,corporate banking)Intellectual property rig
202、hts(IPR)protectionCyber and data-related laws and regulationsLicensing requirements/registration processes for productsDiscrimination against foreign-invested enterprises in public procurementCustoms proceduresUncertainty over the application of anti-trust rulesRestrictions on access to financingTec
203、hnology transfer requirementsOther1%Impediments to accessing legal redress(e.g.,courts)46%35%27%26%25%24%24%21%20%17%9%9%9%5%4%#1#2#3 2023-24 p.p.1%-5%-1%1%0%2%-4%0%-3%0%3%-1%0%1%0%Figure 23:Ambiguity and unpredictability are top issues of regulatory environmentWhich are the top 3 most significant r
204、egulatory obstacles for your company when doing business in Mainland China?1)European Chamber221)Numbers in the table give the relative ranking of each issue to the others for each sector.The importance of each issue is ranked by the weighted total2)Not all challenges are listed3)Industries selected
205、 are those for which there were at least 10 responses3.3 Complying with data regulations a concern for manyAcross all sectors,over half of respondents(55%)report facing difficulties due to the lack of clarity on key definitions(e.g.,important data)in Chinas data regulations,and half of respondents f
206、eel there are too many cross-border data transfer scenarios that could potentially trigger a regulatory security assessment.Since the BCS 2024 was conducted,the Cyberspace Administration of China released the final version of its Provisions on Regulating and Promoting Cross-border Data Flows(Provisi
207、ons),which is expected to lessen the administrative burdens associated with cross-border data transfers.27 However,it is notable that the definitions for key terms are still lacking at the time of writing.27 The European Chamber had provided feedback on the draft version of the Provisions,and is ple
208、ased to see that some of our members recommendations were taken into consideration for the final document.These include the increase of the triggering thresholds,from 10,000 to 100,000 people,for signing standard contracts or applying for certification,as well as the exemption in broader scenarios f
209、rom related administrative requirements.促进和规范数据跨境流动规定 Facilitation and Specification of Regulations for Cross-border Data Flows,Cyberspace Administration of China,22nd March 2024,viewed 27th March 2024,N=529N=53MachineryAutomotivePetro-chemicalsProfessional servicesRetailIT andtelecomMedicaldevicesF
210、inancial services(incl.insurance)N=45N=41N=38N=37N=22N=21N=20Ambiguous rules and regulationsLicensing requirements/registration processes for productsDiscretionary enforcement of rules and regulationsUnpredictable legislative environmentMarket access barriers and investment restrictionsCyber and dat
211、a-related laws and regulationsAdministrative issues(e.g.,tax-related matters,corporate banking)Intellectual property rights(IPR)protectionCustoms proceduresUncertainty over the application of anti-trust rulesDiscrimination against foreign-invested enterprises in public procurement35473243
212、6737268991110Restrictions on access to financing715Technology transfer requirementsImpediments to accessing legal redress(e.g.,courts)3456554485811239Figure 24:Top regulatory issues vary by sector(part
213、 1)Which are the top 3 most significant regulatory obstacles for your company when doing business in Mainland China?1)2)3)N=529Ambiguous rules and regulationsLicensing requirements/registration processes for productsDiscretionary enforcement of rules and regulationsUnpredictable legislative environm
214、entFood andbeveragePharmaceuticalsLegalTransportation,logistics and distributionEducationCivil engineering and constructionUtilitiesCosmeticsMaritimemanufacturingMarket access barriers and investment restrictionsCyber and data-related laws and regulationsAdministrative issues(e.g.,tax-related matter
215、s,corporate banking)Intellectual property rights(IPR)protectionCustoms proceduresUncertainty over the application of anti-trust rulesDiscrimination against foreign-invested enterprises in public procurementRestrictions on access to financingTechnology transfer requirementsImpediments to accessing le
216、gal redress(e.g.,courts)N=20N=19N=19N=18N=16N=13N=8652977615121013N=05N=47245583335581044103310Figure 25:Top regulatory issues vary by sector(part 2)Which are the top 3
217、 most significant regulatory obstacles for your company when doing business in Mainland China?1)2)3)European Chamber23In partnership with1)Multiple answers possible;percentages based on the total number of responses2)Excludes respondents that selected“Dont know”Almost a quarter of respondents(23%)ha
218、ve localised or are considering localising data,IT systems and/or operations to adapt to Chinas data regulations;and nearly a fifth report that their compliance costs have increased because of them.1)Multiple answers possible;percentages based on the total number of responses3.4 Lost business due to
219、 market access and regulatory barriers second highest on recordOver half of respondents(58%,-4pp y-o-y)missed business opportunities in China in 2023 as a result of market access or regulatory barriers.Although this is a slight improvement from 2022,which can be largely explained by the lifting of C
220、OVID-related restrictions,the proportion of those reporting lost business is still the second highest on record.28 28 This question first featured in the BCS in 2015 and has been asked annually since.N=52856%23%19%10%4%4%2%2%They improve our existing data security management mechanismsNo significant
221、 impact yetWe have postponed product-related decisions(e.g.,decisions to bring innovative products and services to China or to introduce new product features)We are considering shifting investments to other marketsWe have already shifted investments to other marketsWe have postponed making investmen
222、t decisionsCompliance costs have increased51102OtherWe have localised,or are considering localising,data,IT systems and/or operations51241%Figure 27:Data regulations push localisationHow are the effective and binding data localisation and cross-border data transfer rules impacting your co
223、mpanys business and operational decisions?1)N=27855%Important definitions(e.g.,important data)are pending clarification50%There are too many cross-border data transfer scenarios that will potentially trigger a regulatory security assessment32%Overlapping/competing requirements from different authori
224、ties28%Difficulties calculating the amount of data being exported28%Easily-triggered thresholds limit cross-border data transfer options for low-risk scenarios.25%Grace period is too short6%Other87018Figure 26:Lack of important definitions and easily-triggered security assessments seen as
225、 main challengesWhat kind of compliance difficulties does your company face in relation to Chinas effective and binding data regulations?1)2)European Chamber241)Excludes respondents that selected“Dont know”Respondents in the pharmaceutical industry report the highest rate of missed business opportun
226、ities(93%).Members attributed this finding to three key factors.First,multinational companies(MNCs)face challenges when it comes to having their products included in the National Reimbursement Drug List(NRDL),29 leading some foreign manufacturers to completely remove certain products from the market
227、.Second,even if members products are successfully included in the NRDL,they cannot get access to hospital listings in a timely manner.30 This is a significant issue,as drug sales to hospitals make up a large proportion of the pharmaceutical market in China.31 Access to the countrys vaccines market i
228、s also limited.32 For MNCs operating in the medical devices industry,the key challenge is the lack of market access for imported medical equipment,with government procurement rules guiding hospitals to buy domestically-manufactured equipment.33 Hospitals can only opt for imported medical devices if
229、they apply for an exemption with a valid reason for instance,citing the lack of a domestically-manufactured alternative.However,members report encountering problems selling their equipment,especially in second and third-tier cities.29 The NRDL negotiation mechanism does not recognise the value of in
230、novative drugs,especially those that cannot be adequately measured by traditional cost-effectiveness modelling or the incremental cost-effective ratio(ICER)threshold,such as for rare diseases(including rare tumours)or mental health conditions.It is therefore difficult for high-value drugs to be list
231、ed in the NRDL without compromising on price.European Business in China Position Paper 2023/2024,European Union Chamber of Commerce in China,20th September 2023,viewed 27th March 2024,p.277,30 In May 2021,the National Healthcare Security Administration(NHSA)and the National Health Commission(NHC)joi
232、ntly published guidance aimed at accelerating access to drug listings at both the hospital and the pharmacy level.However,as most hospitals do not hold Drug Committee Meetings regularly,the latest NRDL-listed drugs cannot be accessed by hospitals in a timely manner.Ibid;国家医保局国家卫生健康委关于建立完善国家医保谈判药品“双通
233、道”管理机制的指导意见 Guidance on Establishing and Improving the Dual Channel Management Mechanism of NRDL Negotiation Drugs,National Healthcare Safety Administration,10th May 2021,viewed 27th March 2024,31 In the first half of 2023,drug sales in public hospitals accounted for 62.8%of the total sales of the t
234、hree medical market terminals in China.Wang,Grace,Retail Pharmacy Sales in China Experience Rapid Growth in H1 2023,BaiPharm,10th January 2024,viewed 28th March 2024,32 For instance,procurement of vaccines for the National Immunisation Programmes is open to domestically-produced products only,exclud
235、ing imported vaccines that are safe,urgently needed and affordable.European Business in China Position Paper 2023/2024,European Union Chamber of Commerce in China,20th September 2023,viewed 27th March 2024,p.279,33 The Ministry of Finance(MOF)has stated that public hospitals carrying out procurement
236、 within their regular budgetwhatever the source of the budgetmust apply government procurement rules,implying that public hospitals must preferably buy medical devices manufactured in China.Reply of the MOF to Petition No.8584 on the Fourth Session of the 13th National Peoples Congress,Ministry of F
237、inance,10th August 2021,viewed 25th March 2024,57%55%54%57%56%55%58%38%42%43%45%46%43%44%45%42%62%58%2002220218N=506N=562N=532N=585N=626N=585N=618N=447N=3962016YesNoFigure 28:Over half miss business opportunities due to market access and regulatory barriersHas your company miss
238、ed business opportunities in Mainland China as a result of market access restrictions or regulatory barriers?1)European Chamber25In partnership with1)Industries selected are those for which there were at least 10 responsesA fifth of respondents that lost business opportunities as a result of market
239、access or regulatory barriers report they would have been worth more than a quarter of their annual revenue.The proportion of those for whom lost opportunities would have been the equivalent of over half of their annual revenue was the highest on record(9%,+4pp y-o-y).34 1)Excludes respondents that
240、selected“No”or“Dont know”3.5 Enforcement of intellectual property rights(iPr)laws and regulations remains a concernWhile a significant majority of respondents(84%,+4pp y-o-y)find Chinas written laws and regulations to be adequate or excellent,nearly half(46%,+1pp y-o-y)believe that they are not adeq
241、uately enforced.34 This question first featured in the BCS in 2015 and has been asked annually since.46%49%49%45%50%50%47%47%43%41%42%35%39%36%36%37%38%37%10%8%12%12%8%11%9%11%6%8%5%6%4%5%9%202020%20162%2024202320222021N=172N=213N=1824%N=222N=215N=209N=196N=150N=197Weve missed business op
242、portunities equivalent to 0-10%of our annual revenue Weve missed business opportunities equivalent to 11-25%of our annual revenueWeve missed business opportunities equivalent to 26-50%of our annual revenueWeve missed business opportunities equivalent to 50%of our annual revenueFigure 30:Record numbe
243、r report missed opportunities equivalent to over half their annual revenueHas your company missed business opportunities in Mainland China as a result of market access restrictions or regulatory barriers?1)49%65%58%30%31%47%31%9%54%7%18%35%50%51%35%42%70%69%53%69%91%46%93%82%65%50%MachineryAutomotiv
244、ePetrochemicals Professional servicesFinancial services(incl.insurance)RetailIT and telecomMedical devicesFood and beveragePharmaceuticalsLegalTransportation,logistics and distributionCivil engineering and constructionN=43N=34N=33N=33N=29N=15N=16N=11N=13N=14N=17N=17N=10YesNo42%41%58%59%2024 Total202
245、4 Selected industriesN=396N=285Figure 29:Prevalence of market access and regulatory barriers varies by sectorHas your company missed business opportunities in Mainland China as a result of market access restrictions or regulatory barriers?1)European Chamber261)Excludes respondents that selected“Not
246、applicable”The 16%of members reporting IPR infringements represented an increase of 4pp y-o-y,and is the highest level recorded since 2017.At the same time,the proportion that did not have their IPR infringed(60%)represented a drop of 6pp from 2023,the lowest level in six years.Of those reporting in
247、fringements,over a quarter(26%)took place within the past year.IPR protection was ranked as a top-three regulatory challenge by 24%of respondents(see Figure 23),and was selected as the most significant regulatory challenge by respondents from the food and beverage,and civil engineering and construct
248、ion industries(see Figure 25).1)Question only asked to respondents that selected frequentlyor rarely in response to question:Has your IPR been infringed in China?N=212 1)40%67%65%63%61%66%60%42%25%24%23%26%22%24%18%8%11%14%14%12%16%N=336N=585N=626N=585N=615N=570N=5292022202242023201826%21
249、%25%11%17%1 year ago1-2 years ago2-5 years ago5-10 years ago10+years agoRarelyNoFrequentlyFigure 32:Uptick in IPR infringement Has your IPR been infringed in China?How long ago did the infringement take place?1)38%35%26%24%30%29%29%23%20%21%17%20%16%56%58%68%67%63%61%63%67%69%65%69%71%73%6%7%6%10%7%
250、10%7%9%10%14%14%9%11%2002020219N=484 N=457 N=4512012N=428 N=459 N=448 N=449 N=523 N=459N=430N=40142015N=391N=474ExcellentAdequateInadequate81%84%79%70%71%65%60%55%51%50%46%45%46%17%15%19%26%27%31%35%40%44%40%46%51%47%4%5%5%5%10%8%5%7%1%20132%20144%20018201
251、9202020212022N=4812023N=455 N=434 N=423 N=457 N=450N=445 N=626N=459N=465 N=41120242%2%2012N=388N=448Figure 31:Almost half find enforcement of IPR laws and regulations inadequateHow does your company rate the effectiveness of Chinas IP protection and enforcement system?1)Written laws and regulationsE
252、nforcement of laws and regulationsHow does your company rate the effectiveness of Chinas IP protection and enforcement system?1)European Chamber27In partnership with3.6 Fading optimism,negative outlookThe percentage of respondents expecting the number of regulatory obstacles to decrease sank to the
253、lowest level on record(16%,-1pp y-o-y).Almost half of respondents(47%)anticipate an increase in regulatory obstacles,while 37%expect the situation to remain unchanged over the next five years.1)Excludes respondents that selected“Dont know”The proportion of respondents that are optimistic about their
254、 growth prospects in China over the coming two years(32%)dropped a significant 23pp from the previous year,with less than a third still positive the lowest level on record.35 Conversely,a record high proportion(26%,+17pp y-o-y)indicated that they were sceptical about their growth potential in China
255、in the coming two years.Three fifths of respondents expect competitive pressure to intensify,the highest level on record,with the proportion of those that are confident they will prevail against the competition sinking below 10%for the first time.The concern over increasing competition is borne out
256、by the 42%of respondents that have lost market share to domestic players in the past five years(see Figure 15).A record level of respondents(44%,+18pp y-o-y)have doubts about their profitability in China,while less than a third(28%,-3ppy-o-y)are optimistic about their sectors productivity in the com
257、ing two years.35 This question first featured in the BCS in 2011 and has been asked annually since.6%5%18%25%23%20%16%14%14%27%25%28%30%28%33%37%36%31%30%34%36%38%36%18%16%14%12%18%12%11%20222021202020192%20183%20242%20233%N=4562%N=615N=540N=551N=500N=435N=528Will increase significantlyWill increase
258、 slightlyWill stay the sameWill decrease slightlyWill decrease significantlyFigure 33:Almost half expect more regulatory obstaclesHow do you expect the number of regulatory obstacles your company is facing in Mainland China to change over the next five years?1)European Chamber281)Excludes respondent
259、s that selected“Not applicable”3.7 Companies strategies to deal with slowing growth could add to Chinas economic woesThe proportion of respondents planning to cut costs in 2024(52%)surged 11pp from last year,rising to the highest level on record.36 Less than half of respondents(48%)said they had no
260、such plans.36 This question first featured in the BCS in 2013 and has been asked annually since.6%5%8%15%11%7%15%17%6%9%9%26%19%22%27%34%40%33%30%41%36%25%30%36%42%78%72%68%58%45%56%62%45%48%68%61%55%32%20020202193%N=5432012N=550 N=539 N=498 N=557 N=519 N=584 N=626N=600N=620 N=
261、5702024N=5015N=58534%39%39%40%44%44%44%43%45%43%41%46%61%48%45%47%44%42%40%41%45%41%44%44%42%31%17%16%14%16%14%16%14%12%14%13%15%12%9%200222023201920122013N=528 N=589 N=5472014N=494 N=552 N=516 N=584 N=626 N=585N=533N=5702024N=5017N=620OptimisticNeutralPessimisticFig
262、ure 34:Business outlook increasingly gloomy(part 1)How would you describe the business outlook for your sector in China over the next two years?1)GrowthCompetitive pressure16%19%17%23%32%29%24%27%31%20%25%26%44%48%51%52%49%49%47%52%51%48%51%48%51%41%36%30%32%28%19%23%23%22%21%29%27%23%15%20182020202
263、1920122013N=525 N=597 N=5412014N=497 N=556 N=521 N=584 N=626 N=585N=535N=5702024N=5017N=620OptimisticNeutralPessimistic6%6%6%10%15%16%14%12%9%8%11%11%16%54%55%54%53%57%52%54%59%59%58%52%58%56%40%39%40%37%28%32%31%30%31%34%37%31%28%200222023201920122013N=483 N=569 N=5
264、182014N=475 N=533 N=496 N=584 N=626 N=585N=501N=5702024N=4917N=620Figure 35:Business outlook increasingly gloomy(part 2)How would you describe the business outlook for your sector in China over the next two years?1)ProductivityProfitabilityEuropean Chamber29In partnership withThe most com
265、mon means of planned cost-cutting is headcount reduction(26%,+2pp y-o-y),followed by the trimming of marketing budgets(21%,+2pp y-o-y)and shrinking office space(14%,+1pp y-o-y).By reducing their staffing levels,European companies would contribute to the growing pressure on Chinas job market.37&38 1)
266、Multiple answers possible;percentages based on the total number of responses2)Question only asked to respondents that selected“Yes”in response to the question:Does your company plan on cutting costs in China in 2024?3)“N”indicates the total number of responses37 In 2023,Chinas surveyed urban unemplo
267、yment rate stood at 5.2%0.4%lower than in 2022.Despite the improvement,Chinas Ministry of Human Resources and Social Security acknowledged the headwinds facing Chinas job market and the need for more efforts to stabilise employment.Businesses were especially concerned about the urban youth unemploym
268、ent data for the 1624 age group,the monthly release of which was suspended by the National Bureau of Statistics(NBS)after it hit a record high of 21.3%in June 2023.The publication of the figure was resumed in December with an alteration of the calculation method,which now excludes students,and stood
269、 at 14.9%.China adds 12.44 mln urban jobs in 2023,says more effort needed this year,Reuters,24th January 2024,viewed 28th March 2024,38 Chinas official purchasing managers indicesboth for the manufacturing and the non-manufacturing sectorsshowed that companies were reducing their staffing levels in
270、every month of 2023,except February,when the subindices for employment indicated a slight expansion.Purchasing Managers Index for December 2023,National Bureau of Statistics,1st January 2024,viewed 28th March 2024,76%61%59%62%54%57%53%62%70%59%48%24%39%41%38%46%43%47%38%30%41%52%200172018
271、20202021N=552N=198N=505N=5622022N=585N=626N=585N=620N=5319N=529N=570YesNoFigure 36:Over half plan to cut costsDoes your company plan on cutting costs in China in 2024?4%4%13%14%19%21%4%3%13%10%10%9%8%7%7%6%24%26%20232024Headcount reductionEngage in zero-base budgetingSet up shared service
272、 centreOutsource support functionsAutomate production linesMove business operations/functions out of ChinaReducing our marketing costsReducing our office sizeOtherN=473N=593Figure 37:Over a quarter plan to cut costs by reducing headcountHow do you plan to reduce costs?1)2)3)European Chamber304.BUSIN
273、ESSES INCREASINGLY HAVE TO NAVIGATE THE POLITICS OF ECONOMIC SECURITYWith the EU,the US and China all putting forward their own frameworks for managing risk and strengthening economic security,39 businesses are facing increased political pressure stemming from conflicting legal regimes and more poli
274、ticised consumer demands.While diversification and the siloing of supply chains are still being explored as ways to build operations that are more resilient to external shocks,many members struggle to find alternative sources for certain components or equipment,which raises questions about the timel
275、ines,as well as the increased costs,for such efforts.4.1 Politicisation of business continuesThe overall sentiment about the politicisation of business improved slightly compared to the previous year,when Chinas zero-COVID policy posed severe challenges to business operations.However,over half of re
276、spondents(55%,-4pp y-o-y)report that Chinas business environment became more politicised in 2023,with only 6%(+2pp y-o-y)saying it became less so.4.2 Businesses caught between conflicting legal regimesCompanies are also facing the risk of being caught between conflicting legal regimes,as recently ad
277、opted and forthcoming legislation in the EU and China pose compliance challenges.The EU has recently rolled out laws to ensure that companies operating outside of its legal jurisdiction remain in line with its human rights and environmental 39 For a detailed analysis of the three different approache
278、s,please refer to the European Chambers report:Riskful Thinking:Navigating the Politics of Economic Security,European Union Chamber of Commerce in China and China Macro Group,20th March 2024,viewed 1st April 2024,5%45%35%41%37%38%36%13%21%19%3%2%20222%2%2023N=620N=5702024N=5291%Much more politicalSo
279、mewhat more politicalNo changeSomewhat less politicalMuch less politicalFigure 38:Majority report increased politicisation in last 12 monthsHas the business environment in China become more political in the last year?European Chamber31In partnership withstandards;40&41 and the US already has legisla
280、tion in place that requires importers to provide sufficient evidence that goods entering the country have not been produced using forced labour.42 It is not clear how companies will be able to comply with such requirements,as independent,third-party audits that are required to certify that they are
281、not using forced labour anywhere along their supply chains are difficult,and in some cases impossible,under current conditions in China.One fifth of respondents reported that they were concerned by this issue,4pp more than in the previous year.A further 40%are unsure of whether they will be impacted
282、,highlighting how much uncertainty surrounds the implementation of the new and forthcoming legislation.1)Excludes respondents that selected“Not applicable”While the EUs Corporate Sustainability Reporting Directive(CSRD)came into effect at the beginning of 2023,its impact will only start to manifest
283、in the financial year of 2024,when affected companies will need to prepare sustainability reportsincluding information on their sustainability policies,environmental protection policies and actions,social responsibility and treatment of employees and respect for human rightsfor submission in 2025.Th
284、e CSRD applies to all large European companies and listed companies(including small and medium-sized enterprises),as well as non-EU companies that have an annual net turnover of euro(EUR)150 million in the EU and at least one EU-based subsidiary or branch.43 A significant 46%of respondents(+2pp y-o-
285、y)say the directive will affect their China operations,with 10%expecting the impact to be substantial.For legislation that is so far-reaching,it is concerning that 15%remain unware of it.40 The EUs Corporate Sustainability Corporate Directive(CSRD)entered into force on 5th January 2023,requiring a b
286、road set of companies to“disclose information on what they see as the risks and opportunities arising from social and environmental issues,and on the impact of their activities on people and the environment.”Corporate sustainability reporting,European Commission,viewed 28th March 2024,41 The Corpora
287、te Sustainability Due Diligence Directive(CSDDD)was proposed by the European Commission on 23rd February 2022.It will require certain EU-based companies to establish due diligence processes to ensure their entire operationsincluding subsidiaries,and up-and downstream suppliersare in line with EU hum
288、an rights and environmental standards.42 The US Uyghur Forced Labor Prevention Act came into effect on 21st June 2022.Implementation of the Uyghur Forced Labor Prevention Act,US Department of State,21st June 2022,viewed 28th March 2024,43 Corporate sustainability reporting,European Commission,viewed
289、 28th March 2024,38%40%45%40%16%20%20232024N=407N=387YesNoDont knowFigure 39:One fifth concerned by lack of ability to conduct independent third-party auditsAre you concerned by the lack of ability to conduct independent third-party audits in China in light of new and forthcoming legislative require
290、ments?1)European Chamber321)Excludes respondents that selected“Not applicable”The Corporate Sustainability Due Diligence Directive(CSDDD)will apply to EU-based companies with more than 1000 employees and a worldwide annual net turnover over EUR 450 million,according to the latest wording of the dire
291、ctive approved by the European Parliament on 24th April 2024,requiring them to establish due diligence processes throughout their operations both up-and downstream.More than 40%of respondents expect to be impacted by this legislation,8%of them substantially.However,16%are currently unaware of the CS
292、DDD,which is concerning given the importance of the legislation.44 1)Excludes respondents that selected“Not applicable”New and forthcoming US export control policies on advanced computing and semiconductor manufacturing are also set to impact a large proportion of EU companies operating in China.45
293、Close to one quarter of respondents(23%,+2pp 44 The BCS 2024 survey had taken place before the thresholds for companies that the directive will apply to were increased from the previously suggested thresholds of over 250 employees and a worldwide net turnover over EUR 40 million for EU companies,and
294、 a turnover higher than EUR 150 million with at least EUR 40 million generated in the EU for non-EU firms.45 On 7th October 2022,the US Department of Commerce released new rules that prohibit American companies from exporting technology,software and equipment to China used in producing advanced comp
295、uting chips and supercomputers.Under the rules,Americans are also barred from supporting certain China-based chip companies without a licence from the US Government.Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the Peoples Republic of China(PR
296、C),US Department of Commerce:Bureau of Industry and Security,7th October 2022,viewed 28th March 2024,17%15%38%39%33%36%11%10%20232024N=418N=404Yes,it will have a substantial impactYes,it will have some impactNo expected impactWe are not aware of the CSRDFigure 40:Almost half expect EUs CSRD to impac
297、t China operationsDo you expect the EUs introduction of the Corporate Sustainability Reporting Directive(CSRD)to impact your China operations?1)N=3948%36%40%16%Yes,it will have a substantial impactYes,it will have some impactNo expected impactWe are not aware of the CSDDDFigure 41:44%expect EUs CSDD
298、D to impact China operationsDo you expect the EUs introduction of the Corporate Sustainability Due Diligence Directive(CSDDD)to impact your China operations?1)European Chamber33In partnership withy-o-y)expect consequences for their operations,while three in 10 do not yet know whether they will be im
299、pacted by the policies,highlighting again that much uncertainty remains over how the regulations will be implemented.4.3 Challenges stemming from politicised consumer demands increaseThe rate of respondents that report challenges as a result of consumer demands becoming more politicised has increase
300、d to 29%(+3pp y-o-y).Some businesses receive conflicting requests from Chinese and Western customers:over a third(37%)are being pressured to produce goods for the China market with no US-made components;and a quarter are being pushed to produce goods for the European or other markets with no China-m
301、ade components.1)Excludes respondents that selected“Dont know”2)Multiple answers possible;percentages based on the total number of responses3)Question only asked to respondents that selected“Yes”in response to the question:Have you experienced challenges stemming from customer demands becoming more
302、politicised?31%32%48%45%21%23%20232024N=570N=528YesNoDont knowFigure 42:Close to one quarter expect to be impacted by US export control policiesHave,or do you expect,your operations to be impacted by new and forthcoming US export control policies/regulations?N=99N=39037%26%20%29%25%6%Pressure from c
303、ustomers to maintain operations in politically sensitive regions in China(e.g.,Xinjiang,Tibet)Demands to produce goods for the China market with no US-made componentsDemands to produce goods for the European market/rest of world(e.g.,US)with no China-made componentsPressure from customers to cease o
304、perations in certain regions in China(e.g.,Xinjiang,Tibet)Reputation management-related challenges(e.g.,due to company spokespeople making comments that are seen as too pro-/anti-China)Other6372620292574%71%26%29%20232024N=410N=390YesNo-41%2023-24 p.p.17%12%4%17%4%Figure 43:Uptick in the rate of tho
305、se reporting increasingly politicised consumer demandsHave you experienced challenges stemming from customer demands becoming more politicised?1)What challenges have you faced?1)2)3)European Chamber344.4 Calls for diversification intensifying,but it cannot be achieved overnightThe EU is in the proce
306、ss of finetuning its de-risking strategy and member states are also putting forward their own supply chain legislation to increase their markets resilience to potential shocks and black swan events,46 as well as to improve the protection of human rights and the environment.As a consequence,European
307、companies operating in China are under increasing pressure to diversify their supply chains.Three quarters of respondents(76%)have already reviewed their supply chains over the past two years.Of those who are taking action,18%are further onshoring supply chains into China,with an additional 3%fully
308、onshoring to ward off the risk of external disruptions to their China operations.A further 12%are diversifying their supply chains by setting up alternative sourcing of supplies outside of China,while maintaining their existing supply chains in the country.Only 1%are fully shifting current supply ch
309、ains from China to other markets.The primary beneficiaries of these diversification efforts are Europe(45%),India(36%)and ASEAN(36%)(see Figure 45).1)Excludes respondents that selected“Not applicable”2)“n/a”refers to a new option or an option that is different from the previous year1)Multiple answer
310、s possible;percentages based on the total number of responses2)Excludes ASEAN,India,Japan,South Korea and Taiwan46 Germanys Act on Corporate Due Diligence Obligations in Supply Chains entered into force on 1st January 2023,requiring companies to assess risks in their supply chains as a first step,an
311、d take measures based on the results to prevent human rights violations or environmental damage.It also sets out regular reporting obligations for supply chain management.Throughout 2023,the law only applied to companies with at least 3,000 employees in Germany,but starting from 2024 it was extended
312、 to companies with at least 1,000 employees.Supply Chain Act Act on Corporate Due Diligence Obligations in Supply Chains,Federal Ministry of Labour and Social Affairs,viewed 28th March 2024,N=34224%23%18%12%11%10%3%1%NoYes,but we are not planning any significant changesYes,we are further onshoring s
313、upply chains into ChinaYes,we are establishing alternative supply chains outside of China,but existing supply chains in China will remainYes,but we are not planning to make any changes(e.g.,lack of viable alternatives)Yes,but we havent made any decisions yetYes,we are fully onshoring supply chains i
314、nto ChinaYes,we are completely shifting current supply chains in China to other markets1%2023-2 p.p.-12%N/A1)N/A1)-1%N/A1)N/A1)-2%Figure 44:Three quarters have reviewed their supply chains in the last two yearsHas your company subsidiary in China reviewed its supply chain strategies in the last two
315、years?1)2)N=441%2023-24 p.p.5%7%-1%2%2%7%0%45%36%36%27%20%18%7%5%5%5%2%EuropeIndiaASEANAsia Pacific other 2)North AmericaSouth AmericaJapanTaiwanMiddle EastAfricaSouth KoreaOther20211%5%-2%5%0%Figure 45:Europe,India and ASEAN main beneficiaries of supply chain diversificationWhere has you
316、r company relocated parts of its supply chain(whole or parts)to?1)2)European Chamber35In partnership withMost companies that are exploring diversification of their supply chains face difficulties finding viable alternatives.47 Less than a third of respondents(30%,+5pp y-o-y)do not import components
317、or equipment into China that cannot be easily replaced in the event of a supply disruption,while just over a fifth(21%,-11pp y-o-y)import critical components for which they have no alternative sources.A quarter(25%,+11pp y-o-y)are able to find alternative sources but report that the substitutes woul
318、d have compatibility issues;another 13%(+2pp y-o-y)say such replacements come at a higher cost;while 11%(-16pp y-o-y)report that alternative products would be of lower quality.1)Excludes respondents that selected No,we are not a production company47 Members interviewed for the European Chambers repo
319、rt on the topic of risk management and economic security reported this to be the case,particularly when it comes to the advanced technology or manufacturing equipment that is needed for running factory operations,which members often import from their home markets.Riskful Thinking:Navigating the Poli
320、tics of Economic Security,European Union Chamber of Commerce in China and China Macro Group,20th March 2024,viewed 28th March 2024,N=3 2130%21%25%No,we have no such components or equipmentYes,and there are no viable alternativesYes,but there are alternatives at lower qualityYes,but there are alterna
321、tives that will have compatibility issuesYes,but there are alternatives at a higher cost966934804211%13%5%2023-24 p.p.-16%2%-11%11%Figure 46:Majority import critical components they cannot easily replaceDoes your company import any equipment or components from abroad for which it cannot find compara
322、ble replacements,or for which finding alternatives would mean accepting lower quality,higher costs or compatibility issues?1)European Chamber365.PROGRESS TAKES TIME AND EFFORT,AND STILL MIGHT NOT BE ENOUGH FOR SOMEThe BCS 2024 shows a significant improvement in perceptions about market opening,as re
323、cent policy developments in several industries contributed to an easing of access restrictions for foreign players.However,this improvement coincided with a notable drop in the likelihood of European companies increasing their investments in China if they were to be granted greater market access.Thi
324、s indicates that if China is to restore investor confidence and reverse the trend of companies diversifying their investments out of the country(see Figures 5 and 6),the need for meaningful progress is becoming increasingly urgent.This is especially the case as,while European companies China operati
325、ons might still see opportunities to expand their presence in China,they find it increasingly difficult to convince their HQs.Members report that a drop in the number of Europeans employed by their China operations has been a key factor behind the trend of decoupling between HQs and China operations
326、,as it has led to a decrease in mutual understanding and trust.48 Although COVID-related restrictions no longer pose a barrier,European companies still face challenges in attracting and retaining international talent in China.European businesses were therefore pleased to see some recent positive dev
327、elopments,including the four-year extension of the individual income tax(IIT)benefits for foreign nationals,49 the extension of Chinas visa-free trial policy to several European countries,50 and the introduction of policies aimed at addressing challenges faced by foreigners living in or visiting Chi
328、na.51 5.1 improvement in perceptions about market opening Rising 9pp y-o-y,the proportion of respondents that report market opening in their industry(19%)is the highest level recorded in nine years.At the same time,11%report that foreign companies market access has decreased in their respective indu
329、stries.1)Excludes respondents that selected“Dont know”or“Not applicable”48 The BCS 2023 showed that foreign nationals make up 10%or less of overall staff for 78%of respondent companies,while 16%of respondents employ no foreign nationals at all in China.European Business in China Business Confidence
330、Survey 2023,European Union Chamber of Commerce in China,21st June 2023,viewed 28th March 2024,p.16,49 Chinas IIT Preferential Policy for Expatriates Extended to End of 2027:Key Points,China Briefing,31st August 2023,viewed 28th March 2024,50 Chiappa,Claudia,China to allow visa-free entry to citizens
331、 from 6 more European countries,Politico,7th March 2024,viewed 28th March 2024,51 Zhou,Qian,China Implements Five New Measures to Ease Entry for International Travelers,China Briefing,11th January 2024,viewed 28th March 2024,1%1%2%3%3%11%9%10%9%6%9%7%9%13%8%43%52%52%52%53%50%50%46%47%44%37%30%32%31%
332、31%31%32%30%26%26%7%7%6%9%10%10%13%10%19%2%20182%20172%4%20162%201520192023N=541N=506N=562N=532N=585N=626N=585N=6202%2024N=443202220212020N=471Significant openingSome openingUnchangedSome closingSignificant closingFigure 47:Almost half reported some market openingHas there been any market opening in
333、 your industry in Mainland China for foreign companies?1)European Chamber37In partnership withRespondents from the financial services industry were the most upbeat about market opening,with over 80%reporting some opening in their industry.Members highlighted the four-year extension of the IIT exemptions for foreign nationals working in China something the European Chamber,and specifically its Fina