Magnetic attraction for EU SMEs

Confidence in China's continued rise has also attracted the manufacturing group Halma Plc, a former rubber trader with headquarters in the UK.

"I think the track record of China's strong and sustainable growth has proved China's ability and that it can and will make further progress in a more balanced way," says Martin Zhang, director and chief representative of Halma Plc in China.

The company, with expertise in electronic, health and safety and environmental technologies, acquired the Hebei-based Baoding Longer Precision Pump Co to consolidate its growth in China.

Longer Precision Pump makes syringe and gear pumps used in laboratory, medical and industrial applications.

Zhang says acceleration of the European SMEs' investment in China shows the country has created a better business environment by simplifying investment procedures and improving transparency.

It also believes the competitive edge EU companies provide matches the country's economic development plan to move up the value chain and pursue high-tech industries.

"We focus our resources in the safety, medical and environmental industries. And these markets will grow strongly in China over many years to come," Zhang says. "China needs the help from other countries for their most advanced technologies and services."

This comes at a time when a string of European conglomerates have signaled a retreat from the Chinese market, citing soaring labor and operational costs among major concerns. Sportswear maker Adidas AG, for instance, opted to relocate to even cheaper ASEAN nations for cost control.

But such costs do not worry SMEs so much. SMEs account for more than 98 percent of companies in Europe and account for 70 percent of EU jobs and GDP. More importantly, they are considered the chief source of creative ideas and technological innovation.

Pester Pac Automation identifies high-caliber skills as the most valuable resource for innovation and long-lasting business ideas.

"Unlike those bigger firms, we are not big producers in volume," says Thomas Pester. "Rather, we need a small number of highly-educated people as the good input in our business. We don't really need quantity of people but the quality and we have that in China, in Shanghai."

Similarly, Haldor Topsoe, with its new catalysts plant in Tianjin, aims to localize production as much as possible, seeking qualified industry specialists and hiring local operations teams.

However, in a recent survey, consultancy Roland Berger Strategy Consultants found that 30 percent of 526 European firms in China mentioned high competition from privately owned Chinese companies as a key impediment to local business.