Foreign companies ‘losing out’ in China Go back »

2010-09-10 | All chapters

Foreign Companies "losing out" in China
Jamil Anderlini, Financial Times, 2nd September 2010

Foreign companies are losing market share in China across a broad range of industries because of discriminatory treatment by the government and regulators, according to the European Chamber of Commerce in China.

In its annual position paper, the organisation aired a host of complaints from its member companies and explicitly accused Beijing of violating its World Trade Organisation commitments through its heavy-handed certification requirements.

“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 group 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 EU chamber said.

This means foreign companies, particularly in industries like banking, transportation, IT and telecommunications, are often unable to get their products certified and so cannot sell them in China.

Based on information gathered from hundreds of European companies operating in China, the position paper is widely distributed in Beijing and Brussels and is important in the formulation of EU policy towards China.

The report was published on Thursday just as Lady Ashton, the EU foreign policy chief, arrived in Beijing for meetings with Chinese leaders, including Wen Jiabao, premier. After meeting Mr Wen, Lady Ashton said he had adopted a conciliatory tone when she raised the issue of foreign investment and had admitted that the government still had some work to do but had said he wanted to create an environment that encouraged investment.

The content of this year’s position paper is unusually critical and reflects increasing dissatisfaction among many foreign businesses in China.

In recent months, a number of executives, including the chief executives of industrial giants General Electric, Siemens and BASF, have commented on the tougher operating environment for foreign businesses in China.

While it is difficult to identify any new government policies that explicitly target foreign firms, companies complain that the previous trend in China of market opening and reform has stalled and in some areas gone into reverse.

“There appears to be a growing willingness and tendency to exclude foreign businesses from the Chinese market,” said Jacques de Boisseson, president of the chamber.

“There are some parts of the Chinese administration that don’t welcome foreign investment and would be satisfied with Chinese companies taking a larger and larger share of the market.”

In its latest business confidence survey, the EU chamber found that 39 per cent of respondents expected the regulatory environment for foreign businesses to worsen over the next two years and a further 22 per cent said they expected no improvement. Only 10 per cent said they thought the regulatory environment would improve for foreign businesses.

“Although the market is growing rapidly there is hardly any industry in China where we see our market share increasing; in fact it is shrinking for foreign companies in most sectors,” said one official from the chamber.

The heavy restrictions that remain on market access for foreign companies in a wide range of Chinese industries is seen as particularly galling at a time when Chinese companies are rapidly expanding into international markets.

In just one example, Chinese carmaker Geely recently acquired Volvo in a high profile deal but foreign carmakers are limited in China to 50 per cent ownership of joint ventures with local companies, which usually require transfer of technology.

According to the EU chamber, just 3 per cent of outbound investment from Europe, or about €5.3bn, goes directly to China.

“That figure does not reflect the attraction the fast-growing Chinese market should have for European companies and if there were greater market access and a better regulatory environment then this percentage would naturally be much higher,” Mr de Boisseson said.

Unequal and discriminatory application of laws and regulations, discriminatory government procurement policies, weak protection of intellectual property and regulatory reform backsliding were all serious concerns for European businesses in China, the Chamber said.