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Chinese Premier Wen Jiabao meets with European Union High Representative for Foreign Affairs and Security Policy Catherine Ashton in Beijing, Thursday, Sept. 02, 2010.
The European Chamber of Commerce in China says in its
annual report that
European companies wish to have equal access to China’s markets but despite
China’s 30 years of reform, it still remains excessively regulated and less open
to competition compared to other major economies.
The chamber says certification requirements exist
in most markets and compulsory certification serves a purpose in cases where
products pose real and direct risks to human health, safety and the environment.
However, compulsory certification procedures must be limited to these specific
areas, beyond which they create barriers to trade.
The Chinese government goes beyond this and
relies on compulsory certification schemes to regulate its large and growing
market. Such practice unduly restricts access to the Chinese market for European
companies in a range of key industries such as the automotive, auto component,
IT and telecommunication equipment, healthcare equipment, electro-technical and
power transmission industries.
As a full member of the World Trade Organisation
(WTO), China is under the obligation to notify all standards and technical
regulations affecting trade to the WTO Technical Barrier to Trade Committee (TBT
In the service sector,
licensing requirements continue to exclude foreign companies from entire
sectors. Nearly ten years after China’s WTO accession, and despite clear
commitments to increase competition in service sectors, European companies are
still denied fair market access to several of them.
“Compulsory certification in excess of
what is reasonable is being used to keep foreigners out of the market and
business license requirements continue to exclude foreign companies from entire
sectors,” the EU chamber said.
China uses business licensing to restrict foreign
access to some sectors and applies “vague and unprecedentedly broad
definitions of public security and critical infrastructure” in its
certification of a wide range of products, the group added.
For a foreign automobile manufacturer wanting to invest in China, the only
permissible business structure is a joint venture (JV) with a Chinese partner,
where the maximum share is limited to 50%. In addition, a foreign investor is
limited to setting up no more than two such Sino-foreign JVs for the production
of passenger cars, and two for commercial vehicles (“2+2”).
The paper says to reach decisions in a 50/50 JV,
consensus between the partners is required; reaching a consensus is no easy
matter when the partners’ interests diverge. Unfortunately, such divergence
leads to management inefficiency in a competitive landscape that demands
efficient decision-making. If occasional managerial deadlock were the only price
to pay to have long-term benefits accrue by participating in China’s automotive
industry, a less than optimal business performance by Sino-foreign automotive
JVs could be condoned. But compared to these JVs, the fastest-growing domestic
carmakers are those who simply buy, and then successfully assimilate,
technological know-how in the open market, and who neither need nor want a
foreign partner. The chamber says this argument is fast being superseded by the
reality unfolding before any impartial observer. Investors in the automotive
industry (foreign or otherwise) should be allowed to hold stakes in an
automobile-producing venture proportional to the business risk they are prepared
The EU chamber says mandatory 50/50 partnerships are counterproductive and
are an anomaly in a market economy. In addition, with a view to furthering the
consolidation of the automotive industry, mergers and acquisitions should not be
hampered by the corollary regulation that foreign investors are limited to a
total of two JVs for the production of passenger cars and two for commercial
This year, Chinese carmaker Geely acquired
100% control of Swedish carmaker Volvo.
Graeme Maxton, chief economist
at The Insight Bureau, discusses how foreign companies in China are faring so
far, with CNBC's Martin Soong:
In its latest business confidence
survey, the EU chamber reported that 39% of respondents expected the
regulatory environment for foreign
businesses to get worse over the next two
years and a further 22% said
they expected no improvement. Only 10% said they thought the
regulatory environment would improve for
"China-EU relations are at a critical
period of development," Chinese Premier Wen Jiabao
said during a meeting on Thursday with Catherine Ashton, EU's high
representative for foreign affairs and security policy.
The EU is China's top trading partner.
Wen urged the two sides to enhance coordination
to tackle the difficulties caused by the international and European debt crises.
"We should build up the confidence of
China, Europe and the international community to overcome difficulties and
realize common development," Wen said.
Trade in goods
EU goods exports
to China 2009: €81.7bn
imports from China 2009: €214.7bn
EU's imports from
China are mainly industrial goods: machinery &
transport equipment and miscellaneous manufactured
articles. EU's exports to China are also
concentrated on industrial products: machinery &
transport equipment, miscellaneous manufactured
goods and chemicals.