Asia Briefing: Europe tries to drive change in way China does business

The European Union Chamber of Commerce's annual position paper is an extremely valuable insight into what European firms think about the business climate in China, but it is probably fair to say it tends towards the downbeat, sugared with some optimistic commentary.

This, after all, is a lobbying document, which the chamber will present to the State Council, China's cabinet, as well as the Ministry of Commerce and other powers-that-be in the largely opaque government.

The chamber represents some heavy hitters in China, including German carmaker Volkswagen, Munich-based engineering company Siemens, HSBC Holdings, Deutsche Bank, and Danish wind-turbine maker Vestas Wind Systems.

This kind of blue-chip membership requires power and tact, and the chamber needs to present its case without pushing the Chinese leadership too far.

This year Davide Cucino, the affable outgoing president, told the assembled press corps at a briefing that the Chinese government must scale back its role in the economy and allow market-driven change to ensure sustainable growth.

"There are many domains where the government is principal and agent and this brings a lot of inefficiencies in the market," said Mr Cucino.

New business environment

The need for this change is evident in the way Chinese firms find it difficult to work overseas. Out of 86 Chinese companies among world’s top 500 companies, only 11 can compete internationally, while of 2,004 Chinese stock companies, 90 per cent take subsidies.

But he said in the past 12 months in China a fundamental change had taken place in how one does business here.

“There is a perception that we have to be treated as foreign, that we have to be treated as different,” he said.

“There is a new business environment you need to face. Going to China to invest thinking that you will have the same kind of profit, the same kind of revenue that you had in the past is not possible anymore.”

It has been a challenging time for European companies.

Mats Harborn, vice-president of the European Chamber with responsibility for the auto industry, said Europe’s carmakers were concerned about a number of developments in China.

“What we objected to was when the government restricted the purchase of government cars to local brands. We thought this was a clear restriction.”

The European carmakers are also worried about bringing their latest technology to China in joint ventures.

Car-making

"The most important thing is to provide the consumer with the best car, and with the current joint-venture restrictions we have great reservations about bringing in the latest technology," Mr Harborn added.

He echoed the president’s words when he called for a greater role for the private sector in car-making in China. “The two most successful domestic brands in China are the two private brands, Geely and Chery,” he said.

And then there is the recent probe into graft in the pharmaceutical companies, which seems entirely centred on foreign companies. “What I feel is a little bit unfair is that the foreign companies which are most serious about SOPs have been the most investigated and the most discriminated. To my knowledge today, no Chinese company has been investigated,” Bruno Gensburger, chairman of the chamber’s Pharma Working Group, said.

European firms are looking hopefully to a plenum of the meeting of the Communist Party’s Central Committee in November. While the meeting is unlikely to give details about what kind of reforms President Xi Jinping is planning, it may give a broad picture of what direction reform will take.

China’s flagging growth and excess capacity in some sectors is cutting company revenues and profits “dramatically”, but this will not stop European firms, including Irish firms, flocking to China.

“This is still one of the best, if not the best, places to be,” Mr Cucino said.