EU business optimism in China at all-time low: Survey

BEIJING (AFP) - Optimism about profitability among European companies in China has fallen to an all-time low, a survey showed on Thursday, with only 29 per cent saying the outlook was positive in the world's number two economy.

The statistic in the European Union Chamber of Commerce in China poll of more than 500 of its members was down from 34 per cent last year and the lowest since the first survey in 2004.

"Financial performance is worsening and optimism about profitability is at its lowest ebb," Mr Davide Cucino, president of the European Chamber, said in a statement.

The survey, which was carried out in March, showed 64 per cent of respondents reported profitability for 2012, down from 73 per cent in the previous year.

The underperforming Chinese economy was a key reason for dampening market sentiment as a stronger recovery had been expected, Mr Adam Dunnett, secretary general of the European Chamber, told a press conference.

"The figures that we've seen coming out of the National Bureau of Statistics... have shown ... we are in for a longer haul, so I think that has caught some people by surprise that it hasn't been a sooner recovery," he said.

China's economy grew 7.8 per cent in 2012 - its slowest pace in 13 years - and registered a surprisingly weak 7.7 per cent expansion in the first three months of this year, well below forecasts.

Other challenges faced by European companies operating in the country included increased competition, rising labour costs and a sluggish global economy, according to the survey.

The situation was exacerbated by China's limits on market access and a demanding and sometimes discriminatory regulatory environment, which led to lost revenues estimated at 17.5 billion euros (S$28.53 billion) last year, said Mr Cucino.

But the country remains important in European firms' global strategies, with 45 per cent of respondents saying China accounted for more than 10 per cent of their worldwide revenues, the survey showed.

The rate is unchanged from last year but represents a sharp rise from 30 per cent in 2009.

Most firms hope China's new leaders will carry out long-awaited reforms to promote greater rule of law and a level commercial playing field, but are unsure whether the issue will be addressed seriously, the poll said.

Mr Cucino called for an "efficient and well-functioning business environment that has equal competition at its core".

Asked whether an ongoing trade dispute between China and the European Union over solar panels - where Chinese firms have been accused of selling below cost in Europe - and telecommunications equipment could escalate into a trade war, Mr Cucino said he was worried about retaliatory measures.

"Who would not be concerned?" he said. "We urge that both sides would engage in friendly negotiations to reach any possible, amicable solutions to the issue. This is especially to avoid any imposition of any measure." European Union member states are due to vote on June 5 whether to impose a heavy 47 per cent tariff on solar panels made by China, the EU's second-largest trading partner.

Trade between China and the EU totalled US$546 billion (S$687.41 billion) last year, according to Chinese government figures.

The EU is also planning to investigate Chinese manufacturers of telecom equipment such as giants Huawei and ZTE.

In apparent response, Beijing is investigating several European chemical companies for alleged dumping, its second move against European industry in less than two weeks after opening a probe into unwelded pipe manufacturers.