European firms' 'best era' may be over

Nearly half of European businesses fear their "golden times" in China are over, amid tougher business conditions in a slowing economy, according to the 2014 European Business in China Business Confidence Survey. It's conducted by the European Union Chamber of Commerce in China in partnership with Roland Berger Strategy Consultants.

Of the 552 businesses surveyed, 46 percent said they believe that the "golden age" for multinationals in the country has ended. That's particularly true for large firms with more than 1,000 employees and veteran companies with more than five years in the country. They have started to feel the pinch with 68 percent and 61 percent, respectively, stating that business in China has become more difficult over the past year.

"A Chinese economic slowdown is a game-changer that will fundamentally and necessarily alter corporate business strategies," Jorg Wuttke, president of the chamber, told a press conference on Thursday in Beijing. "With costs rising and regulatory issues continuing, European companies are starting to put expansion plans on hold."

Only 57 percent of companies plan to expand current operations in the world's second-largest economy, down from 86 percent last year. Only one-fifth of companies gave China as their top investment destination compared with one-third two years ago.

Different industries have contrasting outlooks. Healthcare companies, including those dealing in medical devices, were the most optimistic. with 88 percent saying they had a positive outlook for growth in 2014.

At the opposite end of the spectrum, only 49 percent of financial services companies, including insurers, were optimistic about their business outlook along with only 52 percent of legal companies.

The economic slowdown has drawn fewer foreign businesses to China, said Sara Marchetta, a partner at Italian legal firm Chiomenti Studio Legale and vice-president of the chamber. However, a trend that started in 2012 has seen her firm take up more Chinese clients looking to make mergers and acquisitions overseas.

For some, it has been a question of whether the costs of a presence in China are worth the money that Chinese companies are willing to pay. Her firm has had operations in China since 2006 and, as it is small in terms of personnel, this question has not come into the decision-making process.

She said her company, and most small and medium-sized ones, have the flexibility to adapt to the market and the ability to find niches. This is a luxury that multinational corporations seldom have.

Despite the dip in optimism, China remains critical to the revenue-generating capacities of European companies. The percentage of firms that generated 10 percent or more of their global revenue from China has increased on an annual basis for the past five years.

"European companies will continue to regard the Chinese marketplace as strategically important because the sheer size of the marketplace means that they will continue to generate a high proportion of their global revenues in China," said the survey report. "However, it is clear that they are starting to reappraise China's role."

Nearly half the European companies surveyed are reviewing investment opportunities in other parts of Asia, but so far only one-tenth of the companies have shifted plans from China to elsewhere in the past two years.