China is facing growing pressure to provide a level playing field and increase market access for overseas firms who have long complained about the country's hostile and biased business environment.
The survey comes ahead of an EU-China talks in Brussels on Thursday where two-way investment and trade will be high on the agenda.
In recent months Chinese leaders have taken the mantle to defend free trade and denounce protectionism as the United States retreats into "America First" policies under Donald Trump.
But the results of the latest business confidence survey by the European Union Chamber of Commerce in China suggest Beijing has a long way to go before its rhetoric matches reality.
Forty-nine percent of the 570 respondents said operating in China became more difficult in 2016, a slight pick-up from the previous year's reading of 56 percent.
But 45 percent said conditions were "about the same", up from 38 percent a year earlier.
A steady six percent said there had been an improvement.
And 54 percent said foreign-invested companies were treated unfairly compared with their Chinese competitors, little changed from previous years.
That was particularly obvious in environmental regulation, with the vast majority of European companies saying foreign firms were subjected to far more stringent enforcement than Chinese enterprises.
"European companies are not afraid of competition, they just want to compete on a level playing field," said Mats Harborn, president of the lobby group.
Of the companies polled, most of whom have been in China for more than 10 years, half said they felt less welcome than when they first entered the Chinese market.
Competition is also intensifying with 60 percent of European companies expecting Chinese firms to close the "innovation gap" by around 2020.
"Chinese firms are catching up," said Harborn.
"The Chinese government should feel comfortable that it does not need to protect its industries."
Looking beyond 2017 European companies are largely pessimistic, with only 15 percent expecting regulatory obstacles to decrease and 40 percent expecting the situation to worsen.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)