Rising wages and doubts over reform dent business optimism in China
Rising wages and doubts about reforms see drop in European investor confidence, with more companies reporting lower earnings
European companies are more pessimistic about profits in China because of rising labour costs and a lack of confidence in reforms, a survey has found.
The findings, released yesterday by the European Union Chamber of Commerce in China, reflect the fading allure of the country's cheap labour that was once effective in luring foreign capital.
Foreign investors' shrinking confidence may not bode well for the country's growth in the long run unless the new leadership can further liberalise the market, analysts have warned.
About 44 per cent of the companies in the survey reported a rise in their mainland earnings, down from 64 per cent last year.
A rising share - 21 per cent, from 14 per cent last year - of companies reported a drop in earnings, according to the survey, which covered more than 550 European businesses operating in China.
Less than a third of the companies said they remained optimistic about their profitability outlook in China over the next two years, compared with close to half in 2008.
"The most notable factor negatively affecting net profit margins is rising labour costs, but slower economic growth in both China and Europe, as well as increased competition, also had notable effects," the chamber said in a statement.