Firms more keen to remain invested and build scale in nation, says survey

China has become a crucial part of the global operations of many European multinational companies, with a majority of them reporting higher gross margins last year in the country than in other parts of the world, a new survey said on Tuesday.

Conducted by the European Union Chamber of Commerce in China, the European Business in China Business Confidence Survey 2021 contained responses from 585 members on various aspects like 2020 performance, as well as future outlook.

Nearly a third of all the European manufacturers said they would onshore their supply chains to China, five times the number that are offshoring. About 27 percent of the respondents who are part of a joint venture in China, confirmed their intent to increase their positions, with 18 percent keen on acquiring a controlling stake, while 2 percent preferred to buy out their partner completely to form a fully foreign-owned enterprise, said the survey.

The study said foreign enterprises are not only chasing the growth potential of China's economic recovery, but also thinking on how to stay invested and build scale in the critical market for the long-term. Looking ahead, about 68 percent of European companies in China are optimistic about growth, a 20-percentage-point increase on a yearly basis.

European firms are now more confident about their prospects as steady COVID-19 vaccine rollouts around the world will spur global demand and even stronger growth in China, it said.

"European companies both contributed to and benefited from China's strong and speedy economic recovery," said Denis Depoux, global managing director of Munich-headquartered consultancy firm Roland Berger.

"They are ready to deepen their positions here, and have a wealth of technology and expertise to drive not only growth, but also help with China's decarbonization goals and its industrial upgrade," he said.

Last February, a joint survey of members of the European and German chambers of commerce in China had indicated that nearly 50 percent of the respondents were anticipating a year-on-year decrease in revenue, with only 0.5 percent expecting any increase. Companies spoke extensively of making their global supply chains resilient and diversifying into other markets.

Contrary to those expectations, European companies in China found themselves in a resurgent market after production went back online far quicker than had been initially anticipated. Though year-on-year revenue shifts were the worst in a decade, 42 percent of respondents reported revenue increases last year, with the biggest surge seen in business-to-consumer industries such as retail and automobiles, said the survey.

The survey also said this was largely thanks to Chinese customers who, unable to travel extensively as before, used more of their disposable income to purchase cars, cosmetics and clothing instead. In the meantime, a quarter of respondents saw revenues decrease, with the worst hit in service industries including legal and aviation businesses.

European companies continue to see business opportunities in China not only in areas such as fast growth in domestic consumption, but also in new areas such as the country's leading-edge adoption of new digital technologies, said Sun Fuquan, vice-president of the Beijing-based Chinese Academy of Science and Technology for Development.

Merck, a German science and technology company, will continue to invest in digital transformation, pharmaceutical innovation and collaboration with local partners in China to maintain robust growth in the coming years, said Rogier Janssens, managing director and general manager of healthcare at Merck China.

"In line with the Chinese government's commitment to innovation and to bringing it to a broader population, Merck will focus on the unmet medical needs in China, and the country will be among the first to launch our future innovations," he said.

Toni Petersson, CEO of Oatly Group AB, a Swedish food and beverage company, said the firm will put its first plant in China in Ma'anshan, Anhui province, into operation in the fourth quarter of this year.

Supported by a local innovation team, he said the company, apart from supplying plant-based milk, will tailor exclusive products such as ice cream for Chinese consumers to offer them more options.