A decelerating economy in combination with the ongoing trade conflict between China and the United States meant that 2019 was a challenging year for Benelux businesses in China. In addition, several developments such as the introduction of new regulations including reforms to China’s IIT and VAT law, pension contribution cuts, implementation of the New Foreign Investment Law and the roll out of the Corporate Social Credit System altered the playing field for foreign companies in China.
For the 5th consecutive year, we conducted the Sino Benelux Business Survey to provide insights into the experiences, challenges and opportunities of Benelux businesses in China, the business sentiment as well as their outlook for the future. In the 2020 edition of the survey we also take a preliminary look into how Benelux companies expect COVID-19 to impact their business and how this compares to other challenges and opportunities in the Chinese market.
Respondents are mainly SMEs located in the coastal regions
This year we had a record 197 participants in the survey. In line with previous years, the majority of Benelux businesses are concentrated in the coastal regions, including the main economic clusters in the Yangtze River Delta, Beijing-Tianjin-Hebei region and the Pearl River Delta. The respondents show a similar composition in terms of industry sectors as previous years, where again the top 3 industry sectors consist out of the Industrial Goods- and Services sectors as well as Consumer Goods sector, with 60% of the participating companies being active in one of these three industries.
When assessing the size of the respondents based on their revenues and employees, around 56% of respondents can be categorized as SMEs in China. This year we observe a further decrease as well in the average number of expatriates per firm; which is in line with the general trend experienced by foreign-invested enterprises in China. The main reason for Benelux businesses to be active in China remains the size of the domestic market and for 63% of the companies the Chinese market is at least top 3 market in the global strategy.
Decreasing revenues, stable profits
For the third consecutive year companies from the Benelux in China experienced a negative revenue trend with 18% of companies having negative revenue growth (another 82% of respondents achieved revenue growth). Despite the negative trend in revenue growth for the past three years, still 84% of respondents remained profitable in 2019.
Negative perception, but few companies consider leaving the market
Overall, 31% of respondents are optimistic about the Chinese market, which represents a decrease from 58% in last year’s edition. Interestingly, the respondents of the survey perceive the Business Environment as less restrictive compared to last year.
Despite the more negative perception of the market, companies remain committed to the Chinese market. Only 17% of respondents would consider moving (some of) their Chinese activities to other Asian countries/regions outside of Mainland China, which is a significantly lower than the previous two years (22% in 2018, 31% in 2017).
COVID-19 impacting business and negatively influencing expectations for 2020
92% of the respondents expect their performance to be negatively impacted by the outbreak of the virus, the main causes being decreased demand and travel restrictions.
This is further reflected in the revenue expectations for 2020, where 35% of respondents expect revenues to decrease for 2020, compared to only 18% in 2019.
Profit margins in 2019 remained steadfast, but are expected to decrease for fiscal year 2020. For 2020, 21% of respondents expect to be at a loss with results likely impacted by the COVID-19 outbreak.
We observe a continued negative trend of decreasing revenue growth in combination with an increasingly negative perception of the market. Nevertheless, profits of Benelux businesses remain relatively stable, the business environment is perceived to be less restrictive and fewer respondents are considering to leave Mainland China.
The expectations for 2020 are more negative, where COVID-19 accelerates the negative turnover trend, yet 65% of Benelux businesses still expect increasing revenues for 2020. One aspect for foreign-invested enterprises in China is certain, namely the year 2020 will be an eventful year which will present multiple challenges as well as opportunities. In conclusion, based on the results of the 2020 Sino Benelux Business Survey, we anticipate a negative impact of the COVID-19 outbreak on Benelux firms in China, but the majority of respondents remain confident to overcome the challenges and continue their growth.
To read the full report, please submit your request to receive a copy of the full 2020 Sino Benelux Business Survey report for Free
About the Survey
The Sino Benelux Business Survey is organized by the Benelux Chamber of Commerce in China (Beijing, Shanghai and PRD) in partnership with and executed by Moore - MS Advisory, and is supported by the official diplomatic- and trade representations of Belgium, The Netherlands and Luxembourg in China.