BOFIT Weekly Review 2016/36
European firms fear state’s role in the economy is increasing in China
At the beginning of this month, the European Union Chamber of Commerce in China (EUCCC) released its latest position paper on China’s current five-year plan (2016–2020). The EUCCC said the plan actually increases the state’s role in the economy, and thus runs counter to many of China’s professed economic goals and its long-term opening strategy, which imply reducing the state’s role.
The Chamber said that increased government involvement could be seen in current plans to develop state-owned enterprises (SOEs). China’s SOEs already enjoy preferred status relative to other firms operating in China, yet, according to the EUCCC, many of the targets in the current five-year plan seek to further strengthen their position. The Chamber added that new SOEs continue to be formed and that old SOEs continue to establish major new subsidiaries. Political involvement in SOEs has increased as party committees operating in SOEs have been granted greater authority. The state’s over-involvement is further evidenced by its dealing with overcapacity issue. Instead of dealing with the access of SOEs to cheap credit, reckless borrowing behaviour and wasteful investment, the government has chosen instead to get involved in regulating SOEs directly and determining the amount of capacity to be taken off stream. The EUCCC also pointed out that China uses heavy-handed measures to guide the operations of private firms through e.g. subsidy policy, which does not result in the best outcomes for the Chinese economy.
The Chamber called for reciprocity in opening up to foreign investment, pointing out that Chinese firms can operate rather freely in Europe compared to the operating possibilities of European firms in China. The Chamber also demanded a speed-up in the current EU-China investment agreement talks so that a deal could be finalised within a year at the latest.