A Climate of Uncertainty: Chinese Businesses in the EU Voice Concerns as Confidence Slips

CCCEU, Roland Berger release 6th flagship report on the Development of Chinese companies in the EU

BRUSSELS, Dec. 9, 2024

The China Chamber of Commerce to the EU (CCCEU), in partnership with global consultancy Roland Berger, has published its annual flagship report on the state of Chinese enterprises in the EU on Monday in Brussels. The findings paint a sobering picture of strained ties and growing unease among Chinese businesses operating in the bloc.

The report, titled "Facing Challenges, Forging Ahead: CCCEU Report on the Development of Chinese Enterprises in the EU 2024/2025," underscores that "uncertainty" has become a defining factor for Chinese enterprises operating in the EU, with 78% of surveyed companies reporting an increase in uncertainty in the current business climate. Chinese businesses express concerns about the growing politicization of commercial sectors and urge the EU to create a fair, transparent, and predictable market environment for foreign enterprises.

Based on a four-month survey and in-depth interviews with around 200 Chinese businesses in the EU, the report calls on the EU to respect the global division of labor in supply chains, use trade tools with caution, and avoid overemphasizing "economic security." It also notes that 2025 will mark the 50th anniversary of diplomatic relations between China and the EU, and the business community anticipates both sides will work together to counter the trends of "de-globalization" and "neo-protectionism." The report emphasizes the importance of promoting the healthy development of trade and bilateral relations, contributing to global trade and investment growth.

Liu Jiandong, Chairman of the CCCEU, opened the launch event by highlighting the strong economic ties between China and the EU, with daily trade exceeding €2 billion in 2024. He emphasized Europe's strategic importance for Chinese companies, which have established research, design, and production facilities across the region. These companies contribute to EU tax revenue, job creation, and innovation. The CCCEU's report, addressing issues like market access and trade barriers, aims to support deeper China-EU trade ties. With the 50th anniversary of diplomatic relations approaching, Liu expressed hope for continued collaboration.

Denis Depoux, Global Managing Director at Roland Berger, extended congratulations on the publication of this year's flagship report. He said that "amidst geopolitical shockwaves, the EU and China remain important for each other. The symmetry that we can increasingly observe between the challenges that Chinese enterprises facing in the EU and the ones that European companies facing in China is striking. This is also a strong encouragement to work across both sides to resolve or mitigate issues and move forward. We hope that this report is useful for corporate leaders, as well as policymakers on both sides, to understand concerns and will drive the resolution of some issues through new strategies and rebalanced environments."

The event was hosted by Mr. Fang Dongkui, Secretary General of the CCCEU, with Dr. Li Bing, partner at Roland Berger, introducing this year's flagship report via video link. Selina Wen Han, the CCCEU's council member and Chair of the Digital Working Group, shared examples from the digital economy and sustainable development sectors. The event also included a Q&A session.

Chinese enterprises in EU face challenges but maintain stable or modest growth

The report reveals that China and the EU remain each other's second-largest trading partners, with bilateral trade reaching EUR 740 billion in 2023, according to Eurostat. The EU's trade deficit with China narrowed by 27% compared to 2022, reflecting an improving trade balance. The trade structure continues to evolve, with high-tech products now comprising nearly 30% of the total trade volume.

The category experiencing the highest import growth from China to the EU was motor vehicles, valued at €12.9 billion. Conversely, the EU's largest export to China was also motor vehicles, totaling €19.4 billion, leading to a trade surplus of €6.5 billion in favor of the EU.

In 2023, Chinese investments in the EU have primarily flowed to Luxembourg, the Netherlands, and Sweden. By the end of 2023, China's direct investment stock in the EU reached USD 102.4 billion (EUR 91.7 billion), representing 33% of China's total investment in developed countries. Chinese FDI has set up more than 2,800 companies in the EU, hiring more than 270,000 local employees, China's official data showed.

Despite ongoing trade frictions, the report shows that Chinese enterprises in the EU have largely remained stable, although the proportion of companies reporting revenue growth has significantly dropped.

Approximately 75% of surveyed businesses reported stable or improving conditions in 2023. However, only 50% experienced revenue growth, a sharp decline from 94% in the previous year. In contrast, 23% reported a revenue decline, marking a notable increase compared to previous surveys. On profitability, 44% of businesses recorded an increase in profits, while 30% reported a decrease.

Looking ahead to 2024, Chinese enterprises expect business conditions to remain largely stable. About 35% forecast that both operating revenue and profits will remain on par with 2023 levels, while approximately 40% expect operating revenue to grow, and 34% predict an increase in profitability. However, caution lingers, as 20% of firms project a decline in operating revenue, and 30% foresee shrinking profits.

Most Chinese enterprises see significant potential in the European market but remain cautiously optimistic due to ongoing political and economic uncertainties. About 40% of surveyed companies plan to increase investments in the EU in 2024, while 43% expect to maintain current investment levels. Around 20% plan to reduce their investments, marking the lowest level in recent years.

Key factors driving Chinese companies' decisions to continue investing in Europe include expanding market reach, building global brand recognition, seizing opportunities in the digital and green economies, and diversifying supply chain risks. Notable examples include Bank of China (Europe) S.A.'s green finance initiatives, Huawei's support for local sustainability, COSCO Shipping's management of Piraeus Port, Three Gorges Group's new energy investments, and China Unicom's digital services. These cases illustrate how Chinese companies in Europe are embracing the "In Europe, For Europe" ethos, contributing to economic growth, job creation, and supporting Europe's transition to a low-carbon, digital, and sustainable future.

Chinese enterprises' EU business environment rating declines for fifth consecutive year amid growing uncertainty

The latest report highlights a continued deterioration in the business environment for Chinese enterprises in the EU, with overall ratings falling for the fifth year in a row. In 2024, Chinese companies rated the EU's business environment at 62 points, a sharp decline from 73 points in 2019. This trend reflects mounting challenges in political, economic, and talent-related areas. Survey data shows that 68% of respondents believe the business environment has worsened over the past year, with over half claiming the EU market is no longer "fair and open."

Uncertainty has emerged as the primary challenge, with 78% of respondents identifying it as a key characteristic of their operations. Rising compliance costs and growing anti-China sentiment are also significant factors affecting Chinese enterprises in the EU.

Political factors stand out as major hurdles, with market barriers driven by political issues being the most pressing challenge. Non-political obstacles include high labor costs and limited understanding of Chinese businesses from their peers, customers, and even among employees. In addition, global inflation and the EU's slowing economic growth have added to the operational pressure faced by companies.

Over half of the respondents reported experiencing "differentiated treatment." Despite the EU's commitment to fair market principles, 64% of Chinese enterprises felt they were being treated differently due to their Chinese origin. These companies cited difficulties such as restricted access to public procurement, challenges in market entry and competition, reduced eligibility for subsidies and incentives, prolonged approval processes, and limited communication channels with local governments.

Chinese enterprises advocate for fair treatment in EU, pledge deeper engagement

Chinese enterprises have expressed concerns regarding the EU's emphasis on "economic security," fearing it may politicize business activities. According to the report, approximately 90% of surveyed companies feel that EU policies, including "economic security" and "de-risking," are adversely impacting their operations, undermining business confidence, and prompting strategic adjustments. These enterprises are calling on the EU to uphold the principles of global supply chain dynamics and ensure a fair and open market.

In the electric vehicle (EV) sector, a CCCEU June survey of Chinese EV manufacturers revealed that 73% had been impacted by EU anti-subsidy investigations, leading over 30% to adjust their investment plans in Europe. Companies argue that additional tariffs hurt both sides and are calling for a price commitment agreement to eliminate high anti-subsidy tariffs.

The implementation of the Foreign Subsidies Regulation (FSR) in 2024 has triggered several investigations into Chinese enterprises. More than 70% of firms reported being affected by the FSR, with 11% describing it as a "significant threat" to their operations and 50% experiencing indirect negative consequences.

In the digital economy, the EU's designation of Chinese enterprises as "high-risk vendors" has raised concerns. Around 89% of respondents said the politicization of data and cybersecurity issues in the EU affected their operations. Chinese firms are also worried about the potential for further political actions and the risks of industry decoupling and standards divergence, citing exclusion from 6G research collaborations in the EU, while China remains open to European and global participation in 6G projects.

New EU regulations, such as the Corporate Sustainability Due Diligence Directive (CSDDD) and the Forced Labor Regulation (FLR), are increasing compliance costs. 68% of surveyed companies reported that the CSDDD impacts their operations, while 35% are concerned about the future impact of the FLR.

Despite these challenges, Chinese enterprises remain optimistic about the EU's long-term market potential. About 21% of respondents consider the EU their most important market outside China, with 66% expecting its strategic importance to grow in the next 1-3 years. Over 40% plan to expand their European workforce, and 30% aim to grow their operations or open new outlets in the EU.

The survey also reveals that 55% of Chinese enterprises remain optimistic about the medium- to long-term prospects for China-EU trade and economic relations, particularly in areas such as green cooperation and digital transformation. More than half believe that enhanced China-EU collaboration could accelerate the EU's digital transition, explore AI applications, and promote complementarities within the industrial supply chain.

Report proposes 283 recommendations for improving EU business environment

The report offers nearly 300 recommendations across ten key areas, including politics, economics, talent, infrastructure, commerce, and digital development, aiming to enhance China-EU cooperation.

In the face of complex geopolitical and economic challenges, the report stresses the importance of avoiding the politicization of trade and economic issues, urging both China and the EU to uphold a fair, open, and predictable business environment. It calls for more inclusive EU policies, respect for global supply chain roles, and a reduction in the emphasis on "economic security." Chinese companies are encouraged to adapt to EU market rules and strengthen partnerships with local businesses for sustainable development.

As China and the EU approach the 50th anniversary of diplomatic relations, Chinese enterprises hope for strengthened exchanges in trade, technology, culture, and tourism, calling for increased political trust and deeper cooperation in addressing global challenges.