There is a growing concern amongst European companies about the "leakage of confidential information," with Chinese government agencies demanding detailed data on the products and practices of foreign firms.
"It is unfortunately not uncommon for such proprietary knowledge to be leaked to Chinese competitors," according to a new position paper published by the EU Chamber of Commerce's office in Beijing.
Companies are losing vital classified information at various stages of business development, including project applications, product certification, environmental impact assessments, patent filings, marketing approvals and registration, the paper said.
As a precondition of market access in several industries, businesses must provide government laboratories with highly confidential information which European firms say "goes far beyond the scope" of what should be strictly necessary.
Concern over new patents law
There are also concerns over a draft new patent law which requires innovative companies to submit inventions to the Chinese authorities for "confidentiality examinations" prior to filing patent applications abroad.
This proposal is causing much consternation among companies conducting research and development in China and is "likely to make EU companies less willing" to base R&D operations at their Chinese plants.
The European Chamber says the process has heightened concern about "the potential leakage of highly-sensitive proprietary information during the examination process and the ownership rights to these innovations in the long term".
In a blunt assessment of the business climate for European companies operating in China, the Chamber is also warning of growing restrictions on foreign firms and a marked slowdown in China's economic reform process.
Joerg Wuttke, president of the European Chamber, said government intervention is rising in some sectors while foreign-investment restrictions are on the increase.
"Over the past year, the European Chamber has noted a gradual slowdown – and in some cases a partial reversal – in the economic opening up process," he said.
Access to public procurement hampered
One such example of what Wuttke sees as discrimination against overseas companies is in the area of public procurement, where foreign firms do not always qualify to bid for public projects.
In its position paper for 2010, the European Chamber accuses the Chinese authorities of using technical regulations and certification procedures to limit market access, and in certain cases to push foreign-invested companies out of certain markets altogether.
The report also highlights the apparent contradiction between the acquisition of European automakers by Chinese firms at a time when Europe's car companies cannot establish their own manufacturing facilities in Europe.
"Incredibly, market access conditions for these auto companies have hardly changed in the three decades since the reform and opening up policy began. To operate in China, they are still forced to establish 50/50 joint ventures just as they were 30 years ago," the Chamber says.
Chinese officials hit back at the criticism, saying every effort is being made to promote investment opportunities for foreign companies.
EU Trade Commissioner Catherine Ashton will visit China this week to discuss trade and investment issues. A European SME centre will be established in Beijing later this year as part of an agreement reached at the EU-China summit in May.
