HONG KONG: European businesses are growing increasingly pessimistic about operating in China as confidence hits an all-time low, according to a report by the European Chamber of Commerce in China.

The report highlights concerns over China’s economic slowdown, overcapacity in specific industries, and a politicized business environment, which are driving companies to reconsider their investments.

The report urges China to focus on economic growth and reforms, calling for a more open market where resources are allocated by market forces rather than government intervention. It also emphasizes the need for policies that stimulate domestic demand to counteract sluggish growth.

Profit margins for two-thirds of European companies operating in China are at or below the global average, adding to the growing frustration among foreign investors.

“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 paper.

Tensions between China and the European Union have escalated in recent months, with both sides launching investigations into each other’s trade practices. These tit-for-tat actions have raised fears of a potential trade war, further dampening business confidence.

The European Chamber’s report provides over 1,000 recommendations for improving the business environment, including ensuring consistent policy implementation and refraining from punitive actions against companies based on their home governments’ policies.

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