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Are European companies falling out of love with China?

China's slow progress in opening up its economy to foreign business has prompted European companies to re-evaluate their operations in the world's second largest economy and in some cases drop plans to expand, according to an annual business confidence survey.

The survey, conducted by the European Union's (EU) Chamber of Commerce in China, found that "a significant 41 percent of European companies are now re-evaluating their China operations and planning to cut costs, including through headcount reduction."

The chamber of commerce said in the survey that "Beijing's failure so far to deliver on promises that foreign-invested enterprises will enjoy a more open, competitive market has fostered mounting pessimism."

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Although it noted that a significant proportion of European businesses still planned to expand operations there, 47 percent of the businesses surveyed, it was nonetheless a 39 percentage point decrease from 2013 when an "overwhelming" 86 percent of European companies were intending to do so, the Chamber of Commerce noted.

The body represents European business interests in China and seeks to improve operating conditions for those businesses. Its survey brings together the input of over 500 senior representatives of the European Chamber's member companies to provide an annual overview of their performance and outlook from within the Chinese market.

Market access barriers

Trade between the EU and China is vital for both parties. China is the EU's second largest trading partner after the U.S. and the EU is China's largest trading partner, according to the European Commission. China and Europe now trade well over 1 billion euros ($1.13 billion) a day, the Commission said, although it too noted that "remaining market access barriers" in China were an obstacle for businesses.

Indeed, the EU said in its 2016 survey published on Tuesday that "a clear majority of European business would likely increase their investment in China in the event of market access barriers being removed."

The survey came just hours after senior U.S. officials, including U.S. Treasury Secretary Jack Lew, expressed similar concerns and disappointment over China's protectionist stance towards foreign companies.

"Concerns about the business climate have grown in recent years, with foreign businesses confronting a more complex regulatory environment and questioning whether they are welcome in China," Lew told Chinese and American businesses and officials. , Reuters reported.

One of China's top diplomats responded to the U.S. concerns by saying that China was "comprehensively deepening reform, expanding, opening up, and our economy is expected to maintain long term medium-high growth rates."

Open or closed for business?

Reassurance has also come from the top in China with President Xi Jinping seeking to assuage concerns over China's apparent unfriendliness to foreign business last September. Speaking during a trip to the U.S., Xi said that foreign firms were welcome in China and he rebuffed concerns over China's economy which has seen growth slow in recent years.

Businesses in Europe were not convinced the economic horizon in China is rosy or that reform is afoot, however.

"China's economic slowdown continues to pose a significant challenge to both Chinese and European companies," the EU's Chamber of Commerce in China said in the report.

"However, European business is suffering more acutely from its effects due to an increasingly challenging business environment, coupled with a playing field that is perpetually tilted in favor of domestic enterprises."

The latest survey pointed to a "deepening disillusionment in China's reform agenda" with 56 percent of respondents reported that doing business in China had become more difficult, a five-point increase from 2015." Seventy percent of respondents did not feel more welcome in China than they did 10 years ago.

The lack of confidence was having a direct impact on research and development with European companies' willingness to invest in R&D in China having dropped from 85 percent in 2015, to 72 percent in 2016, indicating that the Chinese Government's ongoing efforts to attract innovation are not having the desired effect.

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