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2012-11-08 | All chapters

China’s economic growth is slowing down rapidly: is this a good or a bad news for European companies?

In order to rebalance China’s economy, it is widely accepted that it is no longer sustainable to maintain growth in the double digits. So we have the situation whereby slowing growth is actually needed. Of course, slowing growth impacts the bottom lines of European companies, but it must be noted that China is still the major contributor to global growth and so it remains of great strategic importance for our companies. It is good news that the current slowdown has now been widely recognised as being both cyclical and structural. As massive growth can no longer be promoted through massive investment spending, it is important that economic reforms are urgently and comprehensively carried out to promote greater innovation and productivity in the economy through increased competition. This is the fundamental requirement for steering the economic growth model onto a more sustainable path.

Are you concerned that the current economic difficulties could prompt China to be less open to foreign companies?

It really shouldn’t and it would be dangerous if this happened. FDI to China has been dropping for a while now and the Chinese government should be concerned about this. Any reactionary steps towards greater protectionism would not be good for China or the world economy right now. We would equally be opposed to any such steps in Europe.

Beijing has floated the idea of an EU-China FTA: are you in favour of such a proposal?

We are already negotiating two EU-China bilateral agreements. It is important that these two agreements, a partnership and cooperation agreement and an EU-China investment agreement, are both finalised in as comprehensive a form as possible. These two agreements already have great potential and can both work to improve the economic, trade and investment ties between the two partners. We are aware that a potential bilateral FTA has been floated as part of a cooperation package. Such a proposal needs to be discussed at the government-to-government level and both sides need to understand and gauge what is most important and, importantly, what is realistic. I am not sure whether three ongoing negotiations would be a good idea when all of these agreements are complicated and time-consuming processes of diplomacy, but the European chamber will support any initiatives agreed at the government-to-government level in order to increase economic ties between the two partners. That being said, I guess it is a good sign that both sides want to negotiate such agreements as it demonstrates a recognition of the importance and interdependence inherent in the EU-China relationship for both sides.

Do you think the proposal will take off?

Such initiatives require a lot of will and hard work on both sides. We hope it will happen, but it may take a while. Hopes are high for the investment agreement since it is timely with the increase in Chinese outbound investment to Europe.

What would be your advice to the next Chinese leadership on how to boost the economy?

China already has a good development strategy as laid out in the 12th five-year plan. The only problem is that, after two years since its release, we are still looking for signs that its major driving principles - further reform and opening up - are actually being implemented. The European chamber believes that China should encourage competition in its economy through allowing greater scope for foreign and private Chinese companies to compete in greater areas of its markets. European companies are especially strong in areas like clean technologies and service provision, which have been identified by China as priority areas for development, so we hope that real implementation will start soon to bolster competition in the marketplace and to allow European companies to contribute fully.

What are the key barriers to investment in China for EU companies ?

There are many and they are diverse. Some sectors are completely blocked off to anybody except Chinese state-owned companies (eg telecoms), others allow foreign entry but restrict their involvement in joint ventures (eg automotive), while yet others cap ownership in Chinese companies and restrict the granting of certain licences (eg banking). Barriers also emerge in terms of unequal access to finance and subsidies or participation in various standards committees. Private Chinese companies are often restricted by the same barriers as foreign companies when competing in sectors dominated by Chinese state-owned companies.

By Sébastien Falletti in Beijing

Source: Europolitics