European firms in China seek a more level playing field

China must offer level playing fields and improve market access for overseas companies, the European Chamber's annual Business Confidence Survey has shown, and while firms are seeing rising sales, most are not convinced that the situation will improve any time soon.

If greater market access were granted, 56 per cent of the 570 respondents said they would be more likely to increase their investments in China.

"European companies compared to last year are showing better results. The question we are asking ourselves is if this is sustainable," European Chamber of Commerce president Mats Harborn told a briefing in Beijing.

The rise in sales was largely attributed to large-scale financial stimulus that the Chinese government had invested in the first half of the year.

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The survey was issued a day before an EU-China summit in Brussels. The business lobby group hoped for progress on negotiating a Comprehensive Agreement on Investment with a strong market-opening component, which would facilitate easier trade between European and Chinese firms.

While Beijing claims to have done much to improve conditions for foreign investment, China remains a tough prospect for European firms, and half of respondents said they felt less welcome than they did when they first entered the market.

More than half have consistently reported over the past few years that foreign-invested enterprises are treated unfairly compared with domestic Chinese companies.

The survey also showed that 60 per cent of European firms in China expect domestic firms to close the innovation gap by 2020. A United Nations report in April ranked China 78th out of 183 countries in making it easy to do business, Harborn noted.

Some 61 per cent believe environmental regulations are strongly enforced against foreign companies, while only 14 per cent and 17 per cent report that they are strongly enforced against Chinese privately owned enterprises and Chinese state-owned enterprises respectively.

The Trump factor

The EU-China summit will be the first since the election of Donald Trump. Both economic powers are pushing to retain free trade principles in the face of protective pressures from the American leader.

“We are here for the long run. European companies want to grow with China and we look at R&D; even though there is a slight decrease in the likelihood that our member companies will increase investment in R&D in the next few years, we are still here for the long run,” said Harborn.

“Our leverage is the Chinese economy itself. It’s about the economy proceeding to a sustainable economic growth trajectory. In order to avoid the middle-income trap, there needs to be level playing fields in place. Regulations need to be enforced and written together with institutions,” said Harborn.

"When we look into the future, European companies remain cautious about investments. The asymmetrical relationship in FDIs between Europe and China increased last year," he said. Chinese investment into Europe jumped 77 per cent to €35 billion in 2016 compared with the previous year, but investment in the other direction fell 23 per cent to €8 billion.

“European investment in China is simply held back,” the survey found. “Meanwhile, Chinese businesses in Europe face few, if any, obstacles to expansion.”