Sentiment among European companies in southern China is lower than elsewhere in the country, according to recent survey results, and analysts expect that the disparity is a direct result of production-capacity shifts and Hong Kong’s falling re-export role.
The European Union Chamber of Commerce in China, which conducted its annual survey earlier this year with consulting firm Roland Berger, found that its members in southern China experienced a more obvious decline in their revenues and profitability.
Nearly 40 per cent of respondents in the south reported obvious revenue declines for 2023 compared with 2022, and 17 per cent saw a substantial decrease of more than 20 per cent, according to the findings released last week. Elsewhere in the country, the regional percentages of respondents who saw their revenue plunge by that much ranged from only zero to 10 per cent.
Around 32 per cent of respondents in southern China reported that their 2023 earnings before interest and taxes decreased compared with 2022, while only 26 per cent described their business outlook as being optimistic for the coming two years – both worse than firms in the rest of China.
“In recent years, many EU enterprises in south China have shifted production capacity to northwest and north China, and even more to [Southeast Asia],” said Liu Kaiming, founder of the Shenzhen-based Institute of Contemporary Observation, a think tank monitoring supply-chain conditions in hundreds of Chinese contract manufacturers.
“In addition, the significant shrinkage of Hong Kong’s re-export function has also affected the business of foreign enterprises in south China.”
Members expected that 2023 would be a good year, as it was right after the Covid opening
Over half of the surveyed firms in southern China reported difficulties in attracting and retaining international talent, compared with 38 per cent across China.
And 36 per cent said they had not benefited from the development of the Greater Bay Area plan, up from 34 per cent in 2022.
The survey polled a total of 529 companies in China, mainly in industrial goods and services sectors; consumer goods and services; and professional services. For southern China, about 70 companies were surveyed. A precise number was not given, as some firms did not answer every question.
“Members expected that 2023 would be a good year, as it was right after [the pandemic], but clients [had amassed stockpiles in] 2022 due to unpredictability and uncertainty, leaving 2023 with fewer new orders from clients,” said Klaus Zenkel, vice-president of the EU Chamber of Commerce in China and chairman of the chamber’s South China Chapter.
His chapter also pointed out that local governments have implemented policies this year, including visa-free travel options, to address commercial impediments reported by European enterprises, particularly small and medium-sized firms. And they were hopeful that more initiatives would be rolled out.
Businesses also encountered challenges in transferring dividends, investing, market expansions and talent retention, which could be partly attributable to the existing regulatory burdens, the chapter said.
Respondents in southern China reported negative perceptions about the treatment of foreign-invested enterprises, it added.
About 41 per cent of respondents in southern China encountered challenges in transferring dividends out of China in the past few years.
Nationwide, the survey showed China’s economic slowdown ranked as the top challenge faced by firms, with 55 per cent flagging it as a concern, compared with 36 per cent in 2023.
A global economic slowdown, US-China tensions, geopolitical risks and competition from privately owned enterprises followed closely behind, the survey showed.