Pedestrians walk past red flags at Tiananmen Square in Beijing, China ( Photographer: Qilai Shen/Bloomberg)

China Urgently Needs Economic Reform, European Chamber Says

(Bloomberg) -- China urgently needs to build on its much-vaunted opening to outside investors by releasing a clear timeline for its reform agenda and working to put international and domestic companies on an equal footing, the European Union Chamber of Commerce in China said.

Since a new thrust by President Xi Jinping toward opening the world’s second-largest economy was set out last year, more has been announced than implemented and much of that has been of limited use to non-Chinese companies, the chamber said in a report released Tuesday in Beijing.

The chamber’s comments contrast with the tone struck by German Chancellor Angela Merkel in Berlin Monday, who following a meeting with Premier Li Keqiang praised China for opening up to foreign investment, drawing a contrast with trade conflicts burdening both countries’ relations with the U.S.

The report follows the results of a survey published last month by the chamber which found that while European companies see some progress on business conditions in China, almost two-thirds of firms think there’s a lack of reciprocity between how they’re treated and the conditions Chinese firms enjoy abroad. That sense of double-standards is helping fuel the trade tensions currently being seen, according to the report.

“Urgent actions are needed to reduce the overwhelming dominance of state-owned enterprises, upgrade the overall regulatory framework, address issues of unequal treatment and better institute the rule of law,” the chamber said. “Failure to act now will only lead to an escalation of the significant tensions that are building in the global economic

The chamber said that some areas had shown improvement, notably environmental protection, local-business conditions, consumer-goods standards and the incentives for research and development.

At the same time, several of the heavily-promoted changes in the investment framework have failed to live up to the hype, in particular the financial sector opening, the chamber said. China announced a significant easing of ownership restrictions in banking, insurance and securities industries, with further details being rolled out this year.

The chamber said that the dominance of local firms however means that outsiders will be able to make little headway.

“The general response from overseas businesses has been subdued, with several business leaders referring to it as, ‘too little, too late’,” the chamber said. “International banks simply do not have the capacity to acquire a significant stake in Chinese banks,
which are too big, completely dominant and entirely unlikely to give up such a stake anyway.”

The pressure that outsiders come under to hand valuable technology to Chinese partners in return for access to the market is as big a concern to Europeans as to the U.S. The Trump administration has justified the current imposition of tariffs partly on the basis of what it sees as Chinese theft of American intellectual property.

“Requirements for unfair technology transfers remain a reality for many international businesses who want Chinese market access,” the chamber said. “The consequences of not dealing with this longstanding issue are now being felt, with the EU announcing the launch of a WTO case against China’s unfair technology transfers.”

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