European Companies Operating in China: What Explains their Deteriorating Sentiment?

Building on a previously published policy brief, this research article utilizes nearly a decade of survey panel data from the European Chamber of Commerce in China's Business Confidence Survey. As an econometric study, our paper utilizes logit regression to uncover factors contributing to the deteriorating sentiment of EU firms operating in China. The survey panel data are unbalanced, meaning that a great deal of respondents submitted survey responses inconsistently. The regression model in this study utilizes Random Effects, preserving data which would otherwise be deleted under a Fixed Effects model.Two consistent survey questions form the basis for this analysis, used respectively as dependent and independent variables: whether firms plan to expand their positions in China in the coming year, and a list of business challenges identified by EU firms operating in China. Control variables include a firm's size as meausred by employee headcount, as well as the length of time they have operated in China.Main conclusions include that the greatest determinant of firms expanding their position in China is profitability, but that China's regulatory environment and external economic circumstances are also substantial underlying issues to the health of EU firms in China.