European firms spooked by slowing China growth

European businesses fear the "good times are over" in China, a survey showed Thursday, citing the country's slowing economic growth, rising labour costs, falling profits, regulatory hurdles and pollution.

The Business Confidence Survey 2014 report, released by the European Union Chamber of Commerce in China and consultancy Roland Berger, showed firms have become increasingly pessimistic as the growth decelerates.

"Business is already tough and it is getting tougher," the report said. "This is leading many to the conclusion that the good times are over."

The survey comes as China's once double-digit annual growth rates have eased in recent years, sitting in the mid-seven percent range as its leaders try to pivot the economy away from relying on exports and big-ticket public investments.

But while top officials say they welcome the weaker rates as part of the drive to a more sustainable growth model, the report said the slowdown "surpassed rising labour costs as the number one perceived challenge for future business in China".

Labour unrest and tensions over wages have increasingly bedevilled foreign companies in China in recent years, spurring some to seek cheaper and more welcoming locales.

Joerg Wuttke, president of the European Chamber, told reporters: "Of course, it's no major surprise if you are experiencing growth in the last 10-20 years of 10 percent or more in GDP (gross domestic product) and it will go down to seven percent that you feel that business has become more difficult."

The survey, based on responses from 552 European businesses in China, found that 68 percent of large companies -- defined as those with more than 1,000 employees -- said doing business had become harder over the past two years.

- air pollution major challenge -

"A new sober reality is developing," the survey said, citing steadily declining financial performance, downwardly revised business plans and regulatory obstacles among reasons.

Wuttke said it was the first time in the history of the survey that respondents' profit margins in China were lower than their global company averages.

The survey also said that "market access and regulatory barriers" in China cost European Chamber member companies 21.3 billion euro ($28.9 billion) in revenue in fiscal year 2013, equal it said to the GDP of Estonia.

China's notoriously bad air quality was cited by 68 percent of respondents as the top challenge in attracting expatriate talent, while 64 percent said it was the biggest difficulty in retaining such personnel.

The challenges are pushing companies to consider opportunities elsewhere, "with half the European companies routinely reviewing investment opportunities in other Asian countries", the survey said.

"In the past it was the China growth story and only the China growth story given how other countries looked," Wuttke said.

"Now... people are looking to the broad picture and see where they can establish themselves best with higher margins", he added, citing "the improving economic climate in some regions" including the United States.

Despite the pessimistic tone of the survey, it also acknowledged that even a challenging Chinese business environment still presented irresistible opportunities.

"European companies will continue to regard the Chinese marketplace as strategically important," the survey found, as its "sheer size... means that they will continue to generate a high proportion of their global revenues" there.

Foreign drug companies, including European ones, have come under scrutiny in China, including over alleged bribery, leading to fears they are being targeted due to their national origin.

Wuttke stressed that it was important authorities handle such cases "in the most transparent manner" to avoid any sense that foreign firms were being singled out.