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Questionnairemotivationanddesign

The 2010 Business Confidence Survey was conducted in March 2010 and published in June 2010. Out of 1,177 eligible entities, 514 responded to at least part of the questionnaire and 374 completed it.

In order to identify evolving trends among businesses in China, most questions asked this year were consistent with those posed in 2009. To follow up on concerns about fair treatment towards foreign invested enterprises raised in last year’s survey, and to determine how businesses are currently faring in the aftermath of the financial crisis, questions re-lating to these issues were added and a new section entitled ‘Crisis Impact and Business Confidence’ was introduced. This year’s survey was specifically interested in the current strength of respondents’ business confidence and how that relates to business decision-making.

Questions that were considered no longer relevant or of little importance given current business conditions were re-moved. To attract a high response rate, the survey was condensed as much as possible while still maintaining the ap-propriate depth and scope to enable a thorough analysis of the business environment.

The core questions included in this year’s survey centred upon the following themes:• Company Profile and Statistics• Crisis Impact and Business Confidence• Company Strategy• Financial Performance• Regulatory Environment• Human Resources

ABOUTTHESURVEY

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Industry

This year’s Business Confidence Survey respondents represent the three primary sectors of industrial goods and ser-vices (35%), consumer goods and services (28%) and professional services (33%). The remaining respondents (4%) were unspecified. The classification of industry categories this year is consistent with 2009 with one exception: Last year’s survey contained a financial services sub-category in order to identify how this sector was impacted by the eco-nomic crisis. This sub-category was omitted this year. The 2009 breakdown was as follows: industrial goods & services at (36%), consumer goods & services (25%) and professional services (39%).

PANELSUMMARY

33% 4% 28%

35%

Other (unspecified)

Consumer goods & services

Professional services

• Media and publishing • IT and telecommunications

(services, infrastructure) • Other professional services (incl.

Legal, consulting services) • Human Resources • Education (incl. Management) • Sciences (incl. Life, Material and

environmental) • Standardization service • Real estate investments • Advertising and branding • Public relations & Communications • Management & HR consulting • Airline catering

Others

• Fashion and textiles • Food and beverage • Pharmaceuticals & healthcare • Financial services (incl. insurance)

Industrial goods & services

• Automotive • Chemicals &

petroleum • Machinery • Utilities, primary

energies & other commodities

• Civil engineering and construction

• Transportation, logistics, and distribution

• Others • Renewable energy

equipment • Paper processing &

manufacturing

• Distribution & Retailing

• Mining and metallurgy

• Trade services & Supplies

• Instrumentation • Aeronautics • Construction

materials • Biotech • Telco equipment • Industrial IT

software (incl. Development)

• Medical equipment • Electronic systems • Engineering

products manufacturing

• Steel manufacturing • Industrial

Manufacturing & Sales

• Testing and Certification

• Packaging • Furniture • Glass • Factory Automation

• Retail & hospitality • Cable industry ••

Consumer electronics & appliancesCosmetics & toiletries

• Tourism & travel ••

Other consumer goodsOthers

N=514

Figure 19: INDUSTRY BREAKDOWN

Revenue,sizeandtimeinChina

Companies with revenues over EUR 250 million were less strongly represented this year than in 2009. Only 10% of respondents reported revenues of this amount compared with 19% in the previous year. A dip in revenue was to be expected given the economic crisis. However, this figure might also be skewed due to the addition of the ‘don’t know/can’t disclose’ option this year. One-third of respondents marked this answer. It is unclear which slice of the pie this large demographic would fall into with full disclosure.

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N=501

< EUR 1 M

EUR 11 M – EUR 50 M

EUR 1 M – EUR 10 M

EUR 51 M – EUR 250 M

EUR 251 M – EUR 1 B > EUR 1 B

Don't know/ Cannot disclose

31%

Figure 20: 2009 TOTAL REVENUE IN MAINLAND CHINA

Some 73% of companies have been operating in China for at least six years, which is consistent with 2009 findings.

N=507

< 2 years 2-5 years

6-10 years 11-20 years

> 20 years

Figure 22: YEARS OF OPERATIONAL PRESENCE IN MAINLAND CHINA

A correlation exists between size and time spent in China. The longer a company has been operating in China, the greater the number of its employees. Some 78% of respondents from companies operating in China for less than two years reported a company size of less than 50 employees.

The increase of SMEs in the survey pool continued this year, with 63% representation compared with 61% last year. A company is designated as an SME if it has fewer than 250 employees.

N=507

< 50 employees

51-250 employees

> 5000 employees

251-1000 employees

1001-5000 employees

Figure 21: NUMBER OF EMPLOYEES IN MAINLAND CHINA

25MotivationforpresenceinChinaSome 52% of respondents have their Asia-Pacific headquarters located in Mainland China, followed by Hong Kong with 20%. Being close to the market/better market access was the most important reason for choosing Mainland China as the headquarters location, as it was in 2009. Respondents continue to prioritise Shanghai, Beijing and other coastal areas for their headquarters and other functional locations. Only 3% of companies are headquartered in the West (Chengdu, Chongqing and Western China).

N=268

3%

Degree of internationalization 6%

Infrastructure, distribution and logistics 7%

Close to the market / Better market access 76%

Relatively more transparent legal environment 0%

Proximity to raw materials/extractive industries 2%

Support from local government 5%

Proximity to talent

Figure 24: MOST IMPORTANT CRITERIA TO DECIDE ON MAINLAND CHINA HEADQUARTERS LOCATION

N=497

5%

FICE 2%

R&D centre

Holding 9%

Regional headquarters 7%

Regional branch / office 14%

Representative office 32%

WFOE 50%

Joint venture 23%

Figure 23: LEGAL ENTITIES UNDER WHICH YOUR COMPANY IS REGISTERED IN MAINLAND CHINA

Legalentities

Wholly Foreign-Owned Enterprises (WFOEs) are again the most common legal entity reg-istered in Mainland China, with half of all re-spondents reporting a WFOE in 2010. Repre-sentative Offices (32%) are the second most common entity followed by Joint Ventures (23%). Companies registered under an R&D Centre (5%) or FICE (2%) yielded the fewest responses. The WFOE legal entity registration is most commonly found in companies that have been operating in China for 11-20 years. More WFOEs exist in the industrial goods and services sector than in the two other industry sectors.

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The following groups are analyzed below:• Industrial goods and services• Consumer goods and services• Professional services• SMEs• Large companies• Companies operating in China for more than 10 years vs. less than 5 years

FINDINGSBYINDUSTRYSECTOR,SIZEANDTIMEINCHINA

• 34% of respondents from this sector said they had benefited from stimulus policies, which was higher than consumer goods and services with 31% and lower than professional services with 47%

• Respondents in this sector are less optimistic about profitability over the next two years (28% report-ing optimism) than consumer goods and services and professional services (both 37%)

• 73% of respondents are optimistic about the business outlook in terms of growth, which is the lowest percentage among the three sectors, indicating that all sectors are very confident of growth

• 18% reported having higher sales targets in China; 11% reported having lower sales targets• With 28% this sector was the least optimistic about the business outlook in terms of profitability (38%

and 36% for professional and consumer services), indicating that industry sectors overall do not have a strong outlook regarding profitability

• Industrial goods and services companies are more likely to have an R&D centre than other industry sec-tors in China at 28%

• 43% are optimistic about productivity over the next two years compared with 38% from consumer and 40% from professional services

Findings by industry sector – Industrial goods and servicesNo. of industrial goods and services companies = 177

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• 58% of respondents reported a positive net profit margin compared with industrial goods and ser-vices at 49% and professional services at 68%

• 53% from this sector are concerned with labour costs and express a pessimistic viewpoint towards it over the next two years, which is a slightly higher percentage than industrial at 51% and professional services at 51%

• 45% are pessimistic about competitive pressure over the next two years versus 40% for industrial and 44% for professional services

• 85% stress increasing revenue, compared with 87% for professional services and 81% for industrial services

• 80% of respondents from this sector are optimistic about growth in their sector, compared with 73% from industrial and 80% from professional services

• At only 7% this sector is the most seriously concerned about ‘Indigenous Innovation’ policies and have already begun to be affected by them. This demonstrates that sectors overall do not have this high on company radar

Findings by industry sector – Consumer goods and serviceNo. of consumer goods and services companies = 138

• 41% of respondents from this sector currently rank China as the top country for additional invest-ments on a global scale (industrial at 28%, consumer at 20%)

• In five years, 28% from the professional services industry continue to see China as the top destina-tion for investments (20% for consumer and 15% for industrial)

• In five years, 50% from the professional services industry feel that China will be one of the top three destinations for investments compared with 38% for consumer and 54% for industrial

• The top three most significant obstacles for professional services firms in China are: Discretionary enforcement of broadly drafted laws and regulations (35%), Registration processes for companies / products (33%) and IPR protection (31%)

Findings by industry sector – Professional servicesNo. of professional services firms = 163

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• The majority of the 2010 survey respondents are SMEs: 63% this year compared with 60% in 2009• 64% of SMEs have been operating in China for less than 10 years• 55% generated less than 10 million Euros in revenue and only 4% generated more than 50 million

Euros from their China operations in 2009• 48% of SMEs had a positive net profit margin in 2009 compared with 50% of larger companies • 50% of SMEs had less than 25% foreign staff in their top management functions in China compared

with around one-third of large companies • 83% of SMEs do not have an R&D centre and are not planning on opening one • Only 5% of SMEs reported direct benefit from stimulus policies and an additional 22% reported indi-

rect benefit through customer demands• Around one-third of SMEs feel that government policies have increasingly discriminated against/less

fair in some capacity towards FIEs over the past two years. Over the next two years, they anticipate government policies to increasingly discriminate/become less fair

• 84% of SMEs prioritise increasing revenue over reducing costs • 31% of SMEs reported net profits from their China operations to be better than their worldwide fig-

ures in 2009 • 21% of SMEs reported that the current number of permanent positions increased relative to the total

number of employees in China last year. 50% expect the number of permanent positions to increase over the next 2 years, relative to the current number of employees.

• Only 15% of SMEs are planning to suspend new investments or reduce/slow existing investments in Mainland China due to recent and expected government regulations

• 56% of SMEs indicated that the economic downturn in their domestic market was a significant factor affecting net profits in 2009 (56%)

• Companies with negative net profit margins in 2009 are predominantly SMEs (87%)• One-third of SMEs are optimistic about profitability in their business sector over the next two years

compared with 21% of larger companies

Findings for SMEs (<250 employees in China)No. of SMEs = 319

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• 21% of respondents were from large companies this year• 84% of large companies have been operating in China for more than a decade• 43% of large companies generated more than 250 million Euro in revenue in 2009• 7% of large companies reported direct benefit from stimulus policies and an additional 50% felt indi-

rect benefit through increased customer demands• Large companies are more inclined than SMEs to feel that they are being allowed to participate in

China’s economic recovery – 87% versus 67% • 90% of large companies prioritise increasing revenue over reducing costs• 61% of large companies stress the importance of increasing sales to increase revenue compared

with 55% of SMEs• 41% of large companies feel that China has become a more important market for their global strat-

egy since the global economic crisis compared to 29% of SMEs• 59% of larger companies view competitive pressure from Chinese companies as a more significant

factor affecting net profit margins in 2009 compared with 35% of SMEs. Both SMEs and larger com-panies feel the level of competitive pressure from foreign companies at 41% and 33%

Findings for large companies (>1,000 employees in China)No. of large companies = 106

• 28% of companies have been operating in China for less than five years and 52% have been operating for more than 10 years

• Companies operating in China longer benefited more from stimulus policies• 78% of companies operating in China for more than 10 years are optimistic about growth in the next

two years; 79% of companies operating for less than five years were optimistic• 37% of respondents operating in China for more than 10 years are optimistic about profitability com-

pared with 18% of companies operating for under five years• Companies operating in China for more than 10 years say that China has taken on a more important

role in their global strategy – 35% for companies with more than 10 years’ experience. Only 27% of companies with less than five years’ experience make this claim

• 71% of companies operating in China for more than 10 years feel that they are being allowed to participate in the recovery, only 69% of companies operating less than five years share this view

• Only 28% of companies operating in China for less than five years identify China as being a more important market for their global strategy since the crisis, compared to 35% of companies operating for over 10 years in China

• Companies operating in China for longer have higher percentages of positive net profit margins, 56% for companies operating for more than 10 years against 27% for companies with less than five years’ experience

• 42% of companies operating for more than 10 years in China said that net profit margins from their China operations were better than their company average worldwide, compared with 15% of compa-nies operating for less than five years

• Companies that have been operating in China for less than five years are less likely to have an R&D centre (22% of companies) than companies that have been operating for longer (29%)

Findings by presence in China – Those operating for >10 years versus <5 yearsNo. of companies operating for >10 years = 262No. of companies operating for <5 years = 139

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In partnership with

Roland Berger Strategy Consultants, founded in 1967, is one of the world’s leading strategy consultancies. With 2,000 employees in 36 offices in 25 countries, the company has successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 180 Partners. The Chinese market is a key pillar of Roland Berger Strategy Consultants’ international expansion. Since entering the Chinese market in 1984, the consultancy has grown rapidly: the four offices in Greater China (Beijing, Hong Kong, Shanghai and Taipei) now have over 200 consultants dedicated to working extensively with both leading Chinese and international companies.

We are committed to our three core values:

ABOUTROLANDBERGERSTRATEGYCONSULTANTS

ServicesSince entering China, Roland Berger has been committed to providing high-quality consultancy services for our clients, including large and mid-sized state-owned enterprises, joint ventures, private companies and government institutions. Roland Berger’s core competencies range from strategy development to restructuring and marketing management. Based on this market knowledge we help multinational corporations, investment funds and international organisations understand development trends in the Chinese market, design global business operations, formulate market entry strategies, position products and services and develop sourcing strategies. These capabilities help our clients improve their global competitiveness and obtain better development opportunities in China.

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“Recent events have shown us once more how intertwined the global economy is, but also how difficult it can be to do business in another country. As a European company, we strongly believe in our European business model. It puts us in a good position to tackle the new challenges ahead and can also serve as a role model for China on its way from being an export-led economy to an economy led more by domestic consumption. To further support and accompany European companies on their road in China, we have once again partnered with the European Chamber to bring valu-able insights for you to the table.”

Charles-Edouard BouéePresident Asia

Contact:Website: www.rolandberger.com.cn

RolandBergerStrategyConsultants(Beijing)Jason Ding, PartnerJason_Ding@cn.rolandberger.com

Suites D&E, 20th Floor, Tower A, Gateway Plaza18 Xiaguangli, East Third Ring North RoadBeijing 100027, P.R. ChinaTel:+86-10-8440-0088Fax:+86-10-8440-0050

RolandBergerStrategyConsultants(HongKong)Jennifer Wilson, Senior ManagerJennifer_Wilson@hk.rolandberger.com

19/F, Two International Finance Centre8 Finance StreetHong KongTel:+852-2251-8823Fax:+ 852-2251-1818

RolandBergerStrategyConsultants(Shanghai)Marcus Hoffmann, PrincipalMarcus_Hoffmann@cn.rolandberger.com

23rd Floor Shanghai Kerry Center1515 Nanjing West RoadShanghai 200040Tel:+86-21-5298-6677Fax:+86-21-5298-6655

RolandBergerStrategyConsultants(Taipei)Alain Lecouedic, PartnerAlain_Lecouedic@hk.rolandberger.com

37th Floor, Taipei 101 Tower7 Xinyi Road, Section 5Taipei 110, TaiwanTel:+886-2875-82835Fax:+886-2875-82999

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In partnership with

Purpose• As the independent voice of EU business in China, we seek greater market access and improved operating condi-

tions for European companies

Services• We provide European business with an effective communication and lobbying channel to the European and Chi-

nese authorities, business associations and media• We ensure key recommendations and lobbying strategies are shaped by business, through our Members’ Working

Groups• We monitor China’s compliance with WTO and other international commitments which impact on doing business in

China• We support companies with an information platform on business and market conditions in China • We help companies expand their networks of European and Chinese business contacts• We promote sharing of knowledge and experience between EU and Chinese business

Principles• We are an independent, non-profit organization governed by our Members• We work for the benefit of European business as a whole• We operate as a single, networked organization across Mainland China• We maintain close, constructive relations with the Chinese and EU authorities while retaining our independence• We seek the broadest possible representation of EU business in China within our membership: large, medium and

small enterprises from all business sectors and EU Member States, throughout China• We operate in accordance with Chinese law and regulations• We treat all our Members, business partners and employees with fairness and integrity

General BackgroundThe European Union Chamber of Commerce in China was originally founded by 51 member companies based in China on 19th October 2000. The rationale for the establishment of the Chamber was actually based on the need of the European Union and local European businesses to find a common voice for the various business sectors. Eight years since its foundation, the European Chamber now has a total of more than 1500 members in some seven cities: Beijing, Chengdu, Nanjing, Pearl River Delta, Shanghai, Shenyang and Tianjin. The Chamber is recognised by the European Commission and the Chinese Authorities as the official voice of European Business in China.

The European Chamber is a member driven non-profit fee-based organisation with a core structure of 34 Working Groups representing all relevant segments of European business in China. It is registered as a Foreign Chamber of Commerce with the Ministry of Commerce and China Council for the Promotion of International trade.

ABOUTTHEEUROPEANCHAMBER

European Chamber

Contact Information

BeijingBeijing Lufthansa Center, Office C412,50 Liangmaqiao Road, Beijing, 100125, P.R. ChinaTel: +86 (0)10 6462 2066Fax: +86 (0)10 6462 2067Email: euccc@euccc.com.cn

ChengduB2-1-19-9, Sun Dynasty International,No. 27, Section 4, South Renmin Road, Chengdu, 610000, P. R. ChinaTel: +86 (0)28 8529 3447Fax: +86 (0)28 8529 3447Email: chengdu@euccc.com.cn

NanjingZhujiang No.1 Building, 30F, E1 1 Zhujiang Road, Nanjing, 210008, P.R.ChinaTel: +86 (0)25 8362 7330 / 7331Fax: +86 (0)25 8362 7332Email: nanjing@euccc.com.cn

Pearl River Delta - GuangzhouUnit 3005, North Tower, China Shine Plaza, No.9 Linhe Xi Road,Tianhe District, Guangzhou, 510613, P.R.China Tel: +86 (0)20 3801 0269Fax: +86 (0)20 3801 0275Email: prd@euccc.com.cn

Pearl River Delta – ShenzhenRm 308, 3/F Chinese Overseas Scholars Venture Bld,South District, Shenzhen Hi-tech Industry Park, Shenzhen, 518057, P.R. ChinaTel: +86 (0)755 8632 9042Fax: +86 (0)755 8632 9785Email: prd@euccc.com.cn

ShanghaiUnit 2204, Shui On Plaza, 333 Huai Hai Zhong Road, Shanghai, 200021, P.R. China Tel: +86 (0)21 6385 2023Fax +86 (0)21 6385 2381 Email: shanghai@euccc.com.cn

ShenyangRoom 2-1105, Office Tower 1, City Plaza, No.206 Nanjing North Street, Heping District, Shenyang, 110001, P.R. ChinaTel: +86 (0)24 2334 2428Fax: +86 (0)24 2334 2428Email: shenyang@euccc.com.cn

TianjinMagnetic Plaza, Building 17, Room 15A17, Junction of Binshui West & Shuishang East Road, Nankai district, Tianjin, 300381, P.R. ChinaTel: +86 (0)22 2374 1122Fax: +86 (0)22 2374 1122Email: tianjin@euccc.com.cn

Website: www.europeanchamber.com.cn