BEIJING, May 10(Reuters) - The proportion of European firms that rank China as a top investment destination has hit a record low, a European business lobby group said on Friday, warning that it could take years to restore confidence in the world's No.2 economy.

The European Union Chamber of Commerce in China said in the latest edition of its Business Confidence Survey that the outlook for doing business in China was also at its lowest in the report's 20-year history, with over a quarter of respondents pessimistic about their current growth potential and 44% downbeat over future prospects.

With China's economy facing headwinds and President Xi Jinping urging self-reliance and for officials to push on with a production-focused, debt driven development model despite pushback from the West, foreign firms are feeling less welcome than before.

EU Commission chief Ursula von der Leyen and French President Emmanuel Macron urged Xi on Monday to ensure more balanced trade with Europe, but the Chinese leader showed little sign of being ready to offer major concessions while in Paris.

"There are worrying signs that some European companies are either silo-ing operations or scaling down their ambitions in China as the challenges they face start to outweigh the benefits of being here," Jens Eskelund, the chamber's president, said.

"While the Chinese government is frequently signalling its intent to improve the business environment, we now need to see concrete action to restore investor confidence."

Just 13% of firms said they currently see China as a top investment destination, the chamber said, down from 16% in 2023 and far lower than during the pandemic, when Beijing's strict zero-COVID regime saw that figure fall from one-fifth to 17% in 2019, 19% in 2020, 27% in 2021 and 21% during 2022, the year the curbs were finally lifted.

BASF, Maersk, Siemens and Volkswagen are among the members of the chamber.

"European companies are confronted by growing uncertainties in China, in large part due to economic volatility and less predictable policy direction," said Denis Depoux, global managing director of management consultancy Roland Berger.

The pandemic and a property crisis have laid bare the limits of China's development model, analysts say. And as China's investment-consumption imbalance is deeper than that of Japan in the 1980s - before its infamous "lost decades" - the economy risks slowing to such an extent that it feels like it is in recession.

European firms are feeling the pinch, the chamber said, with the number of companies reporting revenue increases also at its lowest on record. In tandem, close to 40% of respondents said China's ailing economy was their biggest business challenge, with a slowing global economy coming in a distant second at 15%.

"Companies are continuing to shift investments that were originally planned for China to alternative markets that are perceived to be more predictable, reliable and transparent," the chamber said.

"As investment decisions are made in cycles and are not taken lightly, reversing them will not be possible overnight." (Reporting by Joe Cash; Editing by Raju Gopalakrishnan)