EUROPEANS are finding China less attractive because of rising labour costs, a slowing economy and the absence of rule of law, said European Union Chamber of Commerce in China survey, reports the Wall Street Journal.

Specific problems cited are difficulties attracting and retaining staff, market access barriers and selective regulatory enforcement, according to a survey of 552 European companies operating in China.

"The economic slowdown is a real game-changer for European companies in China," said Jorg Wuttke, president of the European Chamber. "For multinationals, China is still important but not as important as it was."

Fifty three per cent of the companies polled said they expected to see serious reforms to improve the situation. But many are doubtful, and an "abiding sense of pessimism for future performance is setting in."

Some European companies said they were scaling back investment plans. Only one in five ranked China as their top destination for new investments, down from a third in last year's survey.

The proportion planning to expand their activities in China over the near term dropped to 57 per cent from 86 per cent a year ago. Companies that have operated in China longer were more pessimistic.

Impediments are getting more pronounced and entrenched, said the chamber. "Business in China is already tough, and it is getting tougher. Companies are left wondering if the good times in China have already ended."

Companies widely agreed that better rule of law would be the best way to improve China's future economic performance, surveyed companies said.

The laws themselves are adequate, but are weakened by faulty enforcement. "European companies are looking to see what opportunities exist in China's neighbours," the report said.

The results of the poll are similar to an American Chamber of Commerce survey earlier this year, although the decline in confidence was less among US businesses.

Of American firms polled, 73 per cent said they planned to increase their investment in China over the next year, though down from the 84 per cent of the previous survey.