MNI INTERVIEW: Foreign Firms Lack Level Playing Field In China

Foreign direct investment into China will continue to decline and economic tensions between Beijing and Brussels will worsen in the absence of reforms to provide a level playing field for foreign companies as well as to boost domestic consumption, a European business representative told MNI.

While Beijing reiterated its policy of equal treatment for international firms at the Communist Party’s recent third plenum, access to public and government procurement contracts has not improved, with most local officials still feeling pressured to buy from Chinese firms, said Adam Dunnett, secretary general at the European Chamber of Commerce in China.

Dunnet said further commitments to expand the number of encouraged foreign investment and reduce the negative list for non-Chinese access will likely have only a marginal impact for European companies.

“Most sectors are open but regulatory issues have taken precedence,” Dunnet argued, noting the recent opening of the hospital sector would be of more interest to American or Japanese firms.

“Despite most sectors now allowing wholly owned foreign entities, more members actually prefer keeping their Chinese partner,” he added.

China would gain more from accelerating approval times for new investment projects, improving economic data availability and improving access to green power, Dunnett continued.

LACK OF TRANSPARENCY

His comments come as the European Union moves to impose tariffs on Chinese electric vehicles it says are heavily subsidised. Beijing has recently offered voluntarily to limit the number of EVs it exports to the EU and to exercise restraint in their pricing in a bid to ease tensions, though the European Commission has responded cautiously, MNI reported recently. (See MNI: EU Cautious As China Offers EV Quota)

Recent rules, such as China’s Law on Guarding State Secrets and the amended Anti-Espionage Law had a significant impact on European firms' confidence, despite other major countries having similar legislation, Dunnett observed.

“In China, it's the lack of transparency and clarity about these laws that worries investors,” Dunnett said.

Chinese advisors have noted the need for Beijing to clarify rules aimed at protecting foreign investors to reverse, MNI reported last week. (See MNI: China Needs Clarity, Opening To Reverse FDI Drop

Narrowing interest rate differentials following the Federal Reserve’s 50-basis-point cut to its benchmark rate would not greatly impact FDI, which fell 31.5% y/y over the year to August, Dunnet said, noting international funds had left China for higher rate jurisdictions during recent years.

“Members increasingly use China as an export base to compensate for the soft internal conditions,” he said.

The chamber’s annual business confidence survey released in May showed only 42% of firms planned to expand, the lowest on record, and this metric had not improved since, despite Beijing’s heightened FDI focus, Dunnett added.

“China is at a tipping point, with weak domestic conditions, heightened geopolitical tensions, self-reliance strategies, and national security issues – established members have started questioning if the risk is worth it anymore,” Dunnett said.