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28/09/2016

EU business lobby warns of ‘increasingly hostile’ environment in China

Trade & Society

EU business lobby warns of ‘increasingly hostile’ environment in China

China has repeatedly pledged to lower market barriers, but foreign industry groups say a list of prohibited and restricted industries for foreign investors is still too broad.

[Elodie Sellier]

Foreign companies face an “increasingly hostile” environment in China, a European business lobby said on Tuesday (7 June), with fewer than half of its members saying they currently plan to expand operations in the world’s second-largest economy.

China’s failure to deliver on pledges to open market access for foreign companies has triggered a “fresh wave of pessimism”, the European Union Chamber of Commerce in China said in its annual members’ survey, which had more than 500 respondents.

“China’s economic slowdown continues to pose a significant challenge to both Chinese and European companies. However, a business environment that is increasingly hostile combined with a playing field that is perpetually tilted in favour of domestic enterprises means the effects of the slowdown are intensified for European business,” the chamber’s survey report said.

“In fact, it often seems that Beijing is moving in the opposite direction, promulgating vaguely worded, security-related laws and strangling Internet access to the point of harming domestic as well as international businesses.”

47% of European companies said they planned to expand their operations in China, a nine percentage point decrease from 2015 and down from 86% three years ago.

With the economy slowing, 41% of European firms are planning cost cuts, including staff reductions. That’s a record high for the survey, and up 19 percentage points from 2013.

EU lawmakers reject granting China the market economy status

MEPs voted on Thursday (12 May) against granting China the status of ‘market economy’, pre-empting the proposal being prepared by the European Commission.

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China’s leaders have said the country faces a tough battle to keep its economy growing by at least 6.5% a year over the next five years while creating more jobs and restructuring inefficient industries.

“Most of our members believe that the 6.5% target is not relevant, is not going to be possible,” chamber president Joerg Wuttke told reporters at a briefing on the survey.

To breathe new life into the economy, Beijing has put forward its Internet Plus and Made in China 2025 plans to make the country a world leader in advanced industries such as semiconductors, robotics and satellites.

Foreign industry fears those plans could boost protectionism and stymie pledges to open markets wider.

“With nearly half of respondents reporting that it (China’s innovation climate) is less favourable than the worldwide average, it can be considered that it falls short of global standards,” the chamber said.

China has repeatedly pledged to lower market barriers, but foreign industry groups say a list of prohibited and restricted industries for foreign investors is still too broad.

China also says foreign firms have nothing to fear from new security measures that would tighten control, particularly on technology firms.

Chinese industry and the EU's illness

Debate over granting of MES to China goes beyond trade policy and is mostly about Europe’s lack of competitiveness, writes Luigi Gambardella.

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Background

EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement and seven other legally binding agreements.

When China joined the WTO in 2001, it was considered a centrally planned economy, and the terms of its accession required the country to be treated as a "non-market economy" for 15 years.

In a nutshell, prices and costs were regarded as artificially low and unreflective of normal market forces due to state subsidies that its domestic industries enjoyed. As a result, it was easier for other countries to launch anti-dumping probes and impose high duties on Chinese exports.

Beijing has long interpreted the accord to mean that it would automatically be given MES at the end of 2016. Already, more than 90 countries, including the ASEAN states, recognise the MES of China. Australia and New Zealand have agreed to an FTA with China. However, the US, the EU and Japan have not given their say yet on the MES. They would need to pronounce themselves by the end of the year.

Timeline

  • December 2016: WTO to re-examine China's terms of membership and decide whether or not to grant market economy status.