European firms reduce investments in China amid economic slowdown, overcapacity, and trade tensions, as profits decline and competition intensifies.
European firms are reducing expenditures and scaling back investments in China amid economic deceleration and heightened market competition, as indicated by a recent annual survey. The findings highlight growing challenges for businesses operating in China, where a prolonged real estate downturn has weakened consumer demand and export pressures have intensified.
The European Union Chamber of Commerce in China noted in its 2025 Business Confidence Survey that key economic indicators have worsened. Chinese manufacturers, bolstered by state subsidies, have expanded production capacity in sectors like electric vehicles beyond domestic demand, leading to oversupply and aggressive price competition.
"The benefits of bilateral trade and investment are not being evenly distributed,"
remarked Jens Eskelund, president of the EU Chamber in China, during a press briefing. He acknowledged China's efforts to stimulate consumption but emphasized the need for balanced supply-demand dynamics to stabilize the market.
Overcapacity has prompted Chinese firms to seek growth overseas, raising concerns in Europe about the potential impact on local industries. Last year, the EU imposed tariffs on Chinese electric vehicles, citing unfair subsidies as a distortion of competition.
The survey, which gathered responses from approximately 500 companies between January and February 2025, revealed declining profit margins and persistent pessimism among businesses. "Current conditions make it exceptionally challenging for all market participants," Eskelund added.
While China has implemented measures such as lowering lending rates to mitigate economic strain, structural issues in its industrial and trade policies continue to weigh on investor sentiment. The situation underscores broader tensions in global trade relations as nations grapple with shifting economic dynamics.
