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European businesses operating in China are expressing unprecedented pessimism, with confidence levels plummeting to historic lows. The European Union Chamber of Commerce in China's 2025 Business Confidence Survey reveals that 73% of surveyed companies find conducting business in China increasingly difficult, surpassing concerns noted during the COVID-19 pandemic.

Key Findings from the 2025 Survey

• Diminished Profit Expectations: Only 12% of respondents anticipate profitability in China over the next two years, marking the lowest level since the survey's inception in 2004.
• Reduced Investment Plans: A mere 38% plan to expand operations in China within the coming year, indicating a significant decline in future investment intentions.
• Missed Opportunities Due to Regulatory Barriers: A record 63% reported losing business opportunities in 2024 because of market access restrictions and regulatory challenges.

Factors Contributing to the Decline in Confidence

Economic Slowdown and Market Saturation

China's economic deceleration, exacerbated by a prolonged real estate crisis and weakened consumer spending, has created a challenging environment for foreign businesses. Industries such as electric vehicles have experienced overcapacity due to government subsidies, leading to intense price competition and diminished profits.

Regulatory Uncertainty and Geopolitical Tensions

European companies continue to grapple with opaque regulations and an unpredictable legislative environment in China. In 2023, 46% of respondents identified regulatory ambiguity as their primary challenge, marking the eighth consecutive year this issue has topped the list. Additionally, over half of the surveyed companies perceive the business climate in China as increasingly politicized, complicating long-term planning.

Supply Chain Diversification and Localization

In response to mounting challenges, 13% of European firms have already shifted or decided to shift existing investments out of China, while 21% plan to onshore more of their supply chain. This trend reflects a strategic move to mitigate risks associated with China's volatile business environment.

Comparative Insights: British Business Sentiment

British companies operating in China share similar concerns. A survey by the British Chamber of Commerce in China indicates that 58% of British firms found business conditions worsening over the past year, primarily due to sluggish economic conditions. Only 41% anticipate an improved business environment in the coming year, despite China's recent stimulus measures. ‍

Outlook and Recommendations

The cumulative effect of economic slowdown, regulatory hurdles, and geopolitical tensions has led to a significant erosion of business confidence among European companies in China. To reverse this trend, it is imperative for Chinese authorities to implement concrete measures aimed at improving market access, ensuring regulatory transparency, and fostering a more predictable business environment.

As Jens Eskelund, President of the EU Chamber of Commerce in China, aptly stated, "Unless further steps are taken to address the uncertainties confronting companies, then the trend of supply chain diversification is likely to strengthen in the medium-term."