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Seeking a level playing field

Hans Spross / sriJune 7, 2016

European companies operating in China face a raft of tough challenges amid the ongoing slowdown in the world's second-largest economy. Still, if allowed, most of them would like to expand their presence in the country.

China Baustelle Wirtschaft
Image: picture-alliance/dpa/D.Fei

European and German businesses operating in China see the "the glass half-full when they look back and half-empty when they look toward future." That's how Jörg Wuttke, president of the EU Chamber of Commerce in China (EUCCC), summarizes the results of the latest opinion survey conducted jointly by the EUCCC and business consultancy Roland Berger.

The study, titled Business Confidence Survey 2016, was based on responses from over 500 EU firms active in China, representing nearly 40 percent of the total number of European businesses operating in the Asian giant.

The report notes that China's weakening growth has negatively affected not only foreign companies, but also domestic ones. However, it points out that European firms have suffered more, as a result of an "increasingly hostile business environment as well as unfair conditions meant to favor domestic entities."

Despite the surveyed companies' pessimistic outlook, a majority of them said they wanted to strengthen their China business and expand their activities in the country, if possible, Wuttke told DW.

EU investment in China declined by nine percent last year to less than 10 billion euros ($11.35 billion), while Chinese investment in EU countries surged, noted Wuttke.

Joerg Wuttke Peking China
Wuttke: 'There has been plenty of talk about creating a level playing field for both domestic and foreign players, but little progress has been achieved'Image: picture-alliance/dpa/H.W. Young

Differing perceptions

"There has been plenty of talk about creating a level playing field for both domestic and foreign players, but little progress has been achieved," he said.

Wuttke cites the example of the construction industry, where European businesses have been unable to gain a foothold due to the highly restrictive regulatory environment. There are also severe restrictions when it comes to operating in industries such as automobiles, banking, insurance and a number of other sectors.

These are all areas that are expected to see rapid growth in future following China's transformation from being an export-led manufacturing economy into one driven by services and domestic consumption.

Wuttke also underlines that EU firms do not have a uniform view when it comes to their future business prospects in China. "Big companies are more pessimistic than small and medium enterprises (SMEs)," he said, adding that firms that had been active in China for more than five years are more pessimistic than those that have been operating for less than five years.

The reason for this divergence, according to Wuttke, lies in China's economic slowdown, which he says is being felt more by big companies. At the same time, they are facing increased competition from Chinese firms.

But this is not the case when it comes to SMEs, which are more focused on businesses such as retail, hospitality and environmental technology. In contrast, major Eurostoxx and DAX firms are active in sectors - such as nuclear energy, renewable energies and trains - in which Chinese companies have emerged as "world champions," Wuttke highlighted.

Unfair treatment?

The EUCCC report was also critical about the tightening restrictions on the use of Internet and increased censorship. "Instead of taking full advantage of the benefits that full connectivity would offer, China is locking its virtual doors," it stated.

The EUCCC, however, mostly focuses its work on campaigning for equal market access for European investment. "There's no level playing field. For instance, Chinese state-run ICBC bank can open a number of branches in Europe within a few days, but it's totally different the other way round with EU firms facing a number of restrictions."

"China's National Development and Reform Commission (NDRC) presents us with an investment catalog telling us what we can and cannot do," he said, stressing that it shouldn't be the case where the Chinese have complete access to the European market while EU businesses are not conferred the same privilege.

Still, Wuttke hopes for an early conclusion of the bilateral investment agreement between the EU and China, perhaps at the start of 2017. "We definitely need something of the scale of China's WTO accession in 2001 in order for us to finally have a roadmap for reforms."