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2006-09-06 | All chapters

EUCCC Calls for More Time for EU Firms to Adapt to New Rules
Tu Yun, China Radio International, 6th September 2006

The European Union Chamber of Commerce in China has issued a position paper outlining suggestions for European firms doing business in the world's fastest growing market. It advises European businesses avoid investment in overcapacity areas among others. Our reporter Tu Yun has the details.

"This is the member survey. As you'll see, we had companies mainly active in services responding to the survey."

After presenting the paper to Chinese Minister of Commerce Bo Xilai, Serge Janssens, President of the European Chamber of Commerce in China, has revealed the findings to the press in Beijing.

"Interesting to notice is that while in the past the main reason for establishing in China was the cheap labor, now it's production of goods in China. So it's really for the internal market."

And the chosen venues of operation are also seeing a change.

"There is geographic distribution. We have more and more companies operating in second and third tier cities."

In 2004, most members of the chamber resided in big cities like Shanghai, Beijing and Guangzhou. While last year, the figure decreased to less than 60 percent.

The chamber says a major reason for this change is due to the fact that EU companies are now starting to invest in the relatively less developed parts of the country, which offer new markets as well as cheaper labor costs.

But this may not necessarily guarantee a profit. Joerg Wuttke, Vice President of the Chamber, has his own suggestions.

"European businesses are more in the upscale, especially in the Yangtze Delta, business of added value. We also face rising labor cost. So for European businesses, that means they have to be at the leading of technology. They always have to be faster and have to be ahead of the others in order to add value for customers, in order to stay away from overcapacity areas."

According to the paper, European firms remain bullish about their future in China. Over 80 percent of respondents expect to be profitable in 2006. And, of those who do not expect to make profits this year, some 70 percent expect their operations to make money within three years.

While remaining optimistic about the future outlook of business in China, President of the Chamber, Serge Janssens, has also expressed his concerns.

"There is limited circulation of draft of new laws. Another issue is the short time span between publication and implementation. That's probably what we will be facing in banking by the end of the year when they will come out with the new law."

China is now circulating newly drafted rules among foreign banks and asking for their opinions. The new regulations require foreign banks to incorporate locally and create management structures similar to domestic banks if they wish to do yuan-denominated retail business in the country.

The Chamber is calling for more time for European banks to respond before the Chinese government puts in place the new rules.

Click here to view/listen to the report on CRI's website.