European business confidence in China is at an all-time low, with the country’s relations with the West being increasingly tense, according to the annual European Business in China Position Paper.

Profit margins in China are at or below the global average for two-thirds of the companies surveyed earlier in the year, according to the report published on Wednesday by the European Chamber of Commerce in China.

Calls for reforms to boost investor confidence

The leading European business group called for China to reprioritise economic growth and reforms and boost investor confidence by levelling the playing field for all companies in the country.

It also urged China to open its economy and allow a more free market to determine resource allocation and recommended introducing policies to boost domestic demand.

In August, China filed a complaint with the World Trade Organisation (WTO) over European Union tariffs on electric vehicles made in China.

It also launched anti-dumping and subsidies investigations of European dairy products, brandy and pork exports. The tit-for-tat actions have raised fears that a trade war may break out.

European businesses believe returns are not worth the risk

Many European businesses are deciding that the returns on investments in the world’s second-largest economy are not worth the risks, due to issues including China’s economic slowdown and a politicised business environment.

“For some European headquarters and shareholders, the risks of investing in China are beginning to outright the returns, a trend that will only intensify if key business concerns are left unaddressed,” Jens Eskelund, president of China’s European Union Chamber of Commerce, said in a message at the beginning of the report.

The report proposes more than 1,000 recommendations for China to resolve challenges and problems faced by European businesses operating in the country and boost investor confidence.

Among them are calls for China to hold back from punishing companies for the actions of their home governments.

Others include ensuring that policy packages for attracting foreign investment are followed by implementation, and refraining from “erratic policy shifts”.

The report also recommended that the EU proactively engage with China and keep its responses “measured and proportionate” when disagreements arise.