European companies complain about China’s regulatory discrimination

China European Union ShipAn unlevel playing field in China costs European companies € 17.5 billion in missed revenues annually, according to a survey of the European Union Chamber of Commerce in China.

The findings – which also highlight alleged regulatory discrimination as a key concern for these businesses – come amid rising trade tensions between China and the EU which, if intensified, could start to undermine the close commercial ties and bilateral trade worth more than € 1 billion a day.

The European Commission is preparing to impose heavy tariffs on Chinese solar panels and has threatened to open an investigation into Chinese telecoms equipment, both steps that Beijing has said are unjustified. More than half the EU member states have this week opposed plans by Karel de Gucht, the EU trade commissioner, to impose provisional duties which would last six months, owing to concerns about the repercussions for business.

The chamber declined to discuss how the trade dispute would affect European companies in China. “Who would not be concerned about this?” said Davide Cucino, chamber president, referring to the possibility of retaliatory measures from China if any tariffs are imposed:

“We urge that both sides would engage in friendly negotiation to reach any possible amicable solution to the issue, especially to avoid any imposition of any [trade] measure.”

Regulatory discrimination as a key concern

The member states’ opposition nonetheless threatens to undermine Mr de Gucht as the investigation proceeds. It suggests he may struggle to win approval for final duties, when the solar panel investigation concludes, and could have a weaker hand if he tries to negotiate a settlement with Beijing in the meantime.

The chamber’s annual survey showed that even aside from trade concerns, European companies were already feeling squeezed in China due to rising labor costs and the slowing Chinese economy. Optimism hit an all-time low, with only 29 per cent of companies surveyed said they were optimistic about profitability in China in the next two years. Compared with last year, fewer companies said their China operations generated better earnings margins than their worldwide average.

Aggravating this is a “discriminatory regulatory environment” and barriers to market access for European companies, according to the chamber. These barriers were most pronounced in the pharmaceuticals sector and in financial services, the survey found.

Absence of rule of law, inability to enforce contracts, commercial espionage and IP theft

Few foreign businesses are willing to discuss the difficulties of operating in China out of fear that such comments will come back to haunt them. Concerns over the absence of rule of law, inability to enforce contracts, commercial espionage and IP theft are widespread, however.

Chinese officials routinely say that European companies are welcome in China and enjoy the same trading conditions in the world’s fastest-growing major economy. Efforts at reform that would benefit the business community – such as legal changes and better enforcement of intellectual property laws – have made only faltering progress.

“Despite increasing rhetoric from senior Chinese leaders that efforts will be undertaken to transform and level the regulatory environment through allowing greater play to market forces, European companies have so far perceived few concrete changes,” Mr Cucino said. “Financial performance is worsening and optimism about profitability is at its lowest ebb.”

The calculation of the €17.5bn in missed revenues due to market access and regulatory barriers was based on the survey, which asked participating companies what percentage of their total revenues these missed opportunities represented. Of those surveyed, 61 per cent said the missed opportunities represented more than 10 per cent of their annual revenue.

1 Euro = 1.30 USD

Source: – European companies complain about missed China revenues

Categories: Trade & Investment

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