The business relationship between China and Europe is showing several contradictory trends as Beijing seeks to protect its own state-owned enterprises (SOEs) and its leaders seek foreign investments promising further liberalization in rules.
Chinese Premier Li Keqiang was in Berlin on Wednesday calling for joint efforts to promote trade liberalization and investment facilitation. On the same day, a European industry body in China expressed concerns about discrimination against foreign investors and painted a bleak picture of investment growth by Europe-based companies.
Li’s itinerary, which includes a visit to the European Union headquarters in Brussels, comes in the midst of rising political demand for ensuring reciprocity in business dealings with China. Some European countries are asking the EU to make laws enabling them to closely scrutinize Chinese investments and weed out the dubious ones.
“The discussion in itself shows that there is a lot of frustration in Europe on the lack of reciprocity,” said Mats Harborn, president of the European Chamber. “We have open bets for Chinese investments while for us to go to China is a whiling road, so this is causing now political discussions in Europe,” he said.
Given such political conditions, Li’s agenda may seem very ambitious unless China is ready to offer major trade-offs. He is trying to persuade European leaders to accord the status of “market economy” to China, and relax their actions on the dumping of Chinese goods. He also wants the EU to grant a certificate of airworthiness for a China-developed large passenger plane, the C919.
Thomas Gatley, head of research at Beijing-based Gavekal Dragonomics, said the central government in Beijing does make some efforts to open up investment sectors by tweaking the negative list. But these actions are not implemented on the ground.
“We have seen some measures in the form of revised negative list, slowly sub-sector by sub-sector, China opening up to foreign investment in the official capacity,” Gatley told VOA. “But the (foreign) firms continue to find that when they try to operate in these previously closed areas, there is a lot of de facto barriers to success. That continues to be the substance of complaints by foreign companies.”
European companies have reported much better performance in China in the past year. Harborn said this had to do with the government’s stimulus package in 2016, and there are questions if the high growth scenario will continue in the coming months.
Julian Evans-Pritchard, China economist for Capital Economics, said the Chinese economy showed signs of recovery in 2016 because of a generous flow of credit by financial institutions. But this may not continue as the government is cracking down on risky lending.
“We had quite a sharp slowdown in credit over the past half year, particularly since the start of the year, they have been cracking down quite hard on financial risks on bank and financial institutions,” Evans-Pritchard told VOA.
A business confidence survey conducted by the European Chamber revealed over 60 percent of its member-companies regard China’s slowing economy as the number one cause for concern. This is a significant change from past years when the focus of complaints was discriminatory treatment of foreign companies and regulatory controls.
But several members of the Chamber continue to worry about discrimination, saying environmental enforcement agencies are still a lot tougher with foreign companies than they are with local ones.
Another new source of worry for foreign firms is the increasing competitiveness of Chinese companies, which is something that will increase with time as Beijing goes about implementing the China 2025 plan to push the local industry into using the next generation of technology.
“European companies in China acknowledge that Chinese companies are getting increasingly innovative. Rather than a challenge, this should be perceived as an opportunity,” said Denis Depoux, Roland Berger Co-Head for Asia.
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