Recent surveys have shown that business confidence among European companies in southern China is lower than in other parts of the country, and analysts say the gap is a direct result of capacity relocation and Hong Kong’s declining re-export role.
The China-European Union Chamber of Commerce, which conducted its annual survey earlier this year with consulting firm Roland Berger, found that member companies in southern China saw a more pronounced decline in sales and profitability.
Survey results released last week showed that about 40% of respondents in the South reported a clear decline in revenue in 2023 compared to 2022, and 17% experienced a significant decline of 20% or more. In other parts of the country, the percentage of regions reporting such a steep decline in revenue ranged from just 0% to 10%.
Some 32% of respondents in southern China reported a decline in profits before interest and tax in 2023 compared with 2022, while only 26% said they were optimistic about their business outlook for the next two years, both worse than companies in other parts of China.
“In recent years, many EU companies in southern China have relocated their production capacities to northwestern and northern China, [Southeast Asia]” said Liu Kaiming, founder of the Modern Observation Institute, a Shenzhen think tank that monitors the supply chain situation for hundreds of Chinese contract manufacturers.
“In addition, the significant reduction in Hong Kong’s re-export functions is also affecting the business of foreign companies in southern China.”
Members expected 2023 to be a good year, as it came just after the COVID-19 pandemic.
More than half of the southern China companies surveyed reported having difficulty attracting and retaining international talent, compared with 38 percent across China as a whole.
Additionally, 36% of people said they would not benefit from the progress of the Guangdong-Hong Kong-Macao Greater Bay Area plan, up from 34% in 2022.
The survey covered 529 Chinese companies, mainly in the industrial products and services, consumer goods and services and professional services sectors. About 70 companies were surveyed in southern China. The exact number was not released as some companies did not respond to all questions.
“Members were expecting 2023 to be a good year. [the pandemic]but the client [had amassed stockpiles in] “Due to the unpredictable situation and uncertainty, we expect to see a decline in orders in 2022 and fewer new orders from customers in 2023,” said Klaus Zenkel, vice chairman of the China-EU Chamber of Commerce and chairman of the chamber’s South China branch.
The chapter also noted that regional governments have implemented policies this year, including visa-free travel options, to address commercial obstacles reported by European companies, particularly small and medium-sized enterprises, and said it expects further initiatives to be rolled out.
The chapter said companies also face challenges in remitting dividends, investing, expanding markets and attracting talent, which could be partly attributed to existing regulatory burdens.
Respondents in southern China expressed more negative perceptions about the treatment of foreign-invested companies, he added.
About 41% of respondents in southern China faced difficulties in remitting dividends from China in the past few years.
Nationwide, China’s economic slowdown is ranked as the biggest challenge facing businesses, with 55% of businesses citing it as a concern, but this drops to 36% by 2023.
This was followed by a global economic slowdown, tensions between the US and China, geopolitical risks and competition from the private sector, according to the survey.
