The annual survey, carried out by the European Union Chamber of Commerce in China, indicates only 62 percent of EU companies on the mainland have been reporting revenue growth.
That's compared to 71-percent in 2012.
Meanwhile, less than 30 percent of European enterprises remain optimistic about Chinese business and the investment environment, hitting a 6-year low.
A large majority of companies gaining fewer profits are the small and medium-sized firms.
Davide Cucino, President of the European Chamber says the waning financial performance is down to a challenging business environment.
"52 percent of the respondents said rising labor costs had the most significant impact on it. A mixed sentiment about the slower economy growth in the member companies' in home and international markets has become the second and third factors. And this slower growth also affected the home and global demand."
The survey also shows that increased competition from foreign companies of other regions and privately-owned enterprises also had certain affects.
Despite a slight decrease in profits, over 70 percent of the over 550 surveyed companies are still optimistic about China's market outlook.
Only 10 percent of them are considering shifting their investments out of China.
Cucino believes China still remains a strong economic engine despite some reforms need to be implemented.
"Being not so optimistic as before does not mean you have to leave the country. They are not self-contradictory. China is becoming a global player. A lot of companies believe it is important to be engaged in this market. Many companies also believe there are opportunities the market is going to offer in the future provided a number of reforms maybe put in place."
European companies in China say marketing and sales, product quality and HR management is the top three priorities of development.
For CRI, I am Wei Tong.
