This year the European Chamber conducted its Business Con.dence Survey for the second time. Survey results have provided a window into the opinions of European business here in China and illustrate how companies view the current situation, along with how they perceive implementation of China's WTO commitments.

Characteristics of European Companies

In total, 24 percent of the European Chamber's member companies responded to the questionnaire this year, the majority of which are based in Beijing or Shanghai. These cities have proportionally more Eu-ropean small and medium sized enterprises (SMEs) than other Chinese cities.

The majority of European Chamber member companies surveyed have been active in China for many years, with 58 percent having been here for more than ten years, and 76 percent for more than five. However, this year's survey saw an increase in the number of respondents active in China for less than two years, indicating a continued interest in conducting business in China.

On average, member companies employ 2,040 Chinese and 35 foreigners. Collectively, current members of the European Chamber employ an estimated 1,300,000 Chinese and more than 22,000 foreigners in China.

According to the European Chamber members, the top reasons for conducting business in China remain the same as in 2004:

1) To produce goods in China for the Chinese market
2) To import or export from/to Europe
3) To establish or expand the re-gional base
Business Perspectives
Regarding European Chamber members' perspectives on China, 61 percent of com-panies expect to be pro.table in 2005, with those operating in China for more than 10 years having the most positive expecta-tions. Companies that have been in China for a longer period also saw the strongest revenue growth.

Companies that have been in China for five to ten years experienced an average turnover growth of 42 percent last year, and European companies in China for more than 10 years saw revenue soar to a median 34 percent. Performance was strongest for companies located outside Shanghai and Beijing.

A promising 86 percent of European Chamber members hold "Optimistic" or "Cautiously optimistic" opinions on over-all business in China. The opinion that conditions continue to look favorable in the future is confirmed by 68 percent of non-pro.table firms expecting to reach pro.tability within three years.

WTO Implementation

Approximately 44 percent of European Chamber members consider China's ac-cession to the World Trade Organization (WTO) to have had a "Positive" or "Very positive" impact on the conditions for doing business in China. However, 43 percent of respondents say that the imple-mentation of the rules and regulations required by the WTO have had little or no impact on the business climate. This was especially highlighted by companies that have been in China for less than 5 years.

A majority, 51 percent, of the Euro-pean Chamber members surveyed con-sider China to have a positive attitude towards implementing its commitments to the WTO. However, in addition to these very positive figures some con-cerns remain. Firstly, the number of companies that see the Chinese Govern-ment as actively seeking loopholes has doubled from 10 percent to 20 percent from last year. And more than half of the companies that saw China as will-ing to implement the required changes also said that some Chinese authorities were unready or unprepared to fully implement the changes. It should also be noted that even though the figures complement Chinese authorities they are slightly less positive in a few sectors than the previous year.

The impact of China's reform on the business climate is positive according to European Chamber members, however 103the results are marginally less positive than last year.

According to respondents, the top three problems when doing business in China are:

Transparency/Government relations
IPR Protection
Registration processes
Conclusion

Members of the European Chamber have indicated through this year.s sur-vey that they are generally optimistic about the business environment in Chi-na and see the implementation of WTO commitments as having had a positive influence on the business climate. There are still areas in which European Chamber member companies feel that progress can be made, but responses to the Business Con.dence Survey high-lighted an overall positive perspective on behalf of European companies here in China.