It says that a business environment that is "increasingly hostile" combined with a "playing field that is perpetually tilted in favour of domestic enterprises" means the effects of the slowdown are intensified for European business.
This is the main finding of a business confidence survey conducted by the EU Chamber of Commerce in China.
The results of the survey of over 500 senior representatives of the Chamber's member companies were released by Business Europe in Brussels on Thursday.
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The report states that Beijing's "failure to deliver on promises" that foreign-invested enterprises (FIEs) will enjoy a more open, competitive market has triggered a fresh wave of pessimism.
Some 41 per cent of European companies are now re-evaluating their China operations and planning to cut costs, including through headcount reduction, it says.
More than half of the respondents in the survey report that doing business in China is "becoming more difficult" year-on-year.
Entrenched anti-competitive policies and a failure to enact tangible reforms in crucial areas such as rule of law, eliminating local protectionism, removing market access barriers, reigning in overcapacity and tackling high levels of domestic debt are just some of the key reasons.
The Chamber says that the "symbolism" of the ruling communist party's policies have "trumped substance."
It goes on, "Pessimism about the business outlook for China operations of European companies has reached an all-time high, with 31 per cent of respondents pessimistic about their profitability - an eight-point increase over 2015 figures."
Another 15 per cent of respondents report concern about company growth, which is seven percentage points higher than last year.
Anxiety over the increasing difficulties of conducting business in China is particularly pronounced in the information technology and telecommunications, machinery and chemicals sectors.
Additional market access barriers account for the first two sectors, whereas as a continued worsening of overcapacity accounts for the latter.
The Chamber said, "After 35 years of dynamic economic development it is natural that the pace of growth should ease off in China, a process that is already well underway.
"Despite this, China remains a significant investment destination for European companies with 47 per cent reporting that they plan to expand their operations."
However, it is noteworthy that this represents a nine-point decrease from 2015, it says.
Furthermore, only three years ago a staggering 86 per cent of European companies were intending to expand operations, which provides an even more sobering perspective.
In fact, European investment in China is down about nine per cent overall from 2014, to €9.3bn in 2015, suggesting, says the Chamber, that China is losing its privileged position in the investment portfolios of many European companies.
"This contrasts starkly with the staggering €20bn that China invested in Europe in 2015, a 44 per cent leap from 2014.
"However, while the slowdown in economic growth is the primary reason that respondents are scaling back their investment plans, concerns over the nation's growing debt, slowing exports and dwindling returns on investment - particularly in sectors burdened by overcapacity - make it clear that this is by no means the only reason."
The report concludes, "As China looks to ease the transition of its economic model towards one based on qualitative growth, the government has repeatedly promised to enact reforms aimed at shifting the market to the heart of the nation's economy.
"But here too European firms have been disappointed with the resolve that has been demonstrated. In fact, it often seems that Beijing is moving in the opposite direction, promulgating vaguely-worded, security-related laws and strangling Internet access to the point of harming domestic as well as international businesses."
Meanwhile, China's ambassador to the EU, Yang Yanyi, has called on the EU to "respect" the country's sovereignty.
In a reference to the dispute in the South China Sea, she said China and the EU had "shared strategic interests" in promoting stability in the region.
Writing in China Daily, she added, "Given this, we hope the EU will strictly abide by its commitment to respect China's sovereignty and territorial integrity and refrain from taking any action that constitutes interference in the South China issue."
The survey comes after the EU this week adopted a joint communication, entitled "Elements for a new EU strategy on China", which maps out its relationship with China for the next five years.
On Wednesday, Federica Mogherini, the EU's foreign affairs chief, said: "The EU and China already cooperate on so much: we work together on the global and political issues of our times, such as Iran, Syria, Afghanistan, migration and climate change. But we can and must do more to connect the EU and China.
"Our citizens, industries, and organisations can all benefit from a closer, improved, and better-defined EU-China relationship based on shared responsibility. The joint communication that we have adopted will, I am sure, enable our relationship to fulfil its clear potential."
The document identifies major opportunities for the EU's relationship with China, in particular with the aim of creating jobs and growth in Europe as well as "vigorously promoting a greater opening up of the Chinese market to European business."