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2007-11-23 | All chapters

European Companies Find a Rougher Road As Euro Rises vs. Yuan
Jason Jeow, Wall Street Journal, 23rd November 2007

A survey released before an important Europe-China summit indicates European companies feel less upbeat than before about China's business climate.

The European Union Chamber of Commerce in China's annual business confidence survey also shows that fewer European companies than American ones say they are making money in China.

European companies operating in China told the chamber that opaque and inconsistent government regulations have hurt them. The frustration also comes at a time when the stronger euro has caused problems, with more businesses saying they aren't profitable.

Joerg Wuttke, the chamber's president, told reporters that while European companies are still upbeat about China, they also are concerned about a host of problems including intellectual property abuses and arbitrary lawmaking.

"European businesses do well, but they could do better...People are less optimistic than last year," he said.

Their grievances might be aired at the coming week's EU-China summit in Beijing, where trade will top the agenda. The EU is China's largest trading partner, and member countries are increasingly upset at Europe's growing trade deficit with Beijing. In the first eight months of this year, it was almost $150 billion, up from $117 billion in the same period of 2006.

The surveyed European companies cite the lack of government transparency as the biggest obstacle to doing business in China. They say it isn't always clear why some rules are imposed, often quite abruptly. In a recent example, which occurred after the surveys were sent out, monetary authorities told local commercial banks to stop issuing loans, an unexpected administrative edict.

For the surveyed European businesses, intellectual property issues also loom large. Half of the responding companies said they don't intend to set up research and development centers in China for fear of intellectual property rights abuse, a situation they say hasn't improved despite many years of government exhortation.

"There has been a lot of talk [about protecting property rights] but not much walk," Mr. Wuttke said.

A total of 220 European companies operating in China -- 30% more than in 2006 -- supplied responses to the survey.

Of the responding companies, 61% said they will be profitable in China this year. Last year, 76% of those taking part in the survey said they were making money. The lower percentage is due in part to the stronger euro, which makes European goods more expensive and operating costs higher, Mr. Wuttke said.

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