EU business lobby:China growth pessimism says cutbacks looms

European companies are growing more pessimistic as China's economy slows, a European business lobby said on Wednesday, with many firms preparing for lay-offs in the face of weaker economic growth and slow market reforms.

Beijing is targeting 7 percent annual growth this year, which would be the slowest in a quarter century, though many private economists doubt the government can keep that up for the next five years.

The European Union Chamber of Commerce in China said its annual survey of members showed 39 percent of 541 respondents were planning to cut costs, a figure that rose from around 24 percent in 2014. Most of those are "planning employee lay-offs", the survey report said.

"Pessimism about growth and profitability has forced European business to cut back significantly, particularly through headcount reduction," the chamber said.

Fifty-eight percent of European companies were still optimistic about growth prospects in China, though the number represents a 10 percentage point decline over the 2014 survey. Companies planning to expand their China business has dropped by 30 percentage points since 2013, to 56 percent from 86 percent.

"This is really a paradigm shift in the economy, and companies and are holding back investment because of uncertainty in the market place," Chamber President Joerg Wuttke told Reuters.

The chamber said disappointment is palpable with a perceived lack of progress on China's vowed market reforms, which would potentially unlock opportunities for the foreign business community in many state-dominated industries.

"We...don't need propaganda and we don't need campaigns. We need substantial change, bottom up, top down, from central government to the regions, and better laws and better implementation," Wuttke told reporters at a briefing, adding that it would take time.

The European Union and the United States are trying to carve out more space for their companies in China's market through respective bilateral investment treaties with Beijing.

But President Xi Jinping has said China's national security covers areas from politics and culture to the military, the economy, and technology.

A raft of pending laws, including rules on national security, contain language that some investors fear would discriminate against foreign firms, impinge upon investment treaty talks or dilute eventual agreements.

"This whole notion of economic security can completely undermine the achievements you have in these bilateral agreements being negotiated," Wuttke said.