European Firms Pull Back as China’s Economic Pressures Mount

European companies are increasingly cutting costs and rethinking their investment strategies in China as the country’s economy shows persistent signs of strain. 

According to the European Union Chamber of Commerce’s 2025 Business Confidence Survey, falling profit margins and sluggish demand are driving firms to scale back amid an environment of deepening overcapacity and intensifying price wars.

The challenges are structural. China’s real estate sector continues to drag down consumer sentiment, and state-subsidised production in key industries, particularly electric vehicles, has outpaced domestic demand. 

This has triggered aggressive price competition and a shift in focus toward international markets. But that overseas push is now colliding with trade protectionism. The EU responded last year by imposing tariffs on Chinese EVs, citing unfair subsidies as a threat to European industry and jobs.

At the core of the issue is an imbalance in the bilateral trade and investment relationship. Chinese firms are expanding supply, but domestic demand is lagging behind. While Beijing has attempted to stimulate consumption, European companies remain wary of whether these measures can offset growing risks.

What Does This Mean for Me?

About 500 firms participated in the survey, with many reporting increased cost pressures and eroding margins. The survey’s results suggest many companies are adopting a wait-and-see approach in the Chinese market.

As inflation remains modest in China and GDP growth forecasts hover below the 5% mark, foreign firms are recalibrating their expectations. For now, the message is clear: cautious pragmatism is replacing optimism as global players assess the sustainability of their operations in the world’s second-largest economy.