European firms propose a wide range of economic reforms to improve China’s business environment

Last month, the European Union Chamber of Commerce in China (European Chamber) released its annual European Business in China Position Paper, which lays out the business environment perceptions of member firms operating in China. The position paper contains over a thousand constructive recommendations on actions the Chinese government might take to improve the situation, and notes that European firms say operating in China has become riskier even as the benefits have become more meagre. While the challenging situation has forced some member firms to rethink their business strategies in China, the paper observes that European firms generally remain committed to staying in the Chinese market. The European Chamber hopes to use the paper in promoting EU-China commercial and political dialogue to improve business conditions for its member firms.

European firms in China are particularly concerned about the country’s slowing economic growth. This creates a vicious circle whereby lacklustre domestic demand and burgeoning challenges in the economic policy environment depress corporate confidence in the economy. Factors include regulatory barriers to market access, a politicised business environment, ambiguous business regulations, the government’s obsessions with national security and high levels of self-sufficiency, as well as industrial overcapacity. The report also points out that China’s inaction on promised economic reforms has added to the pessimism among responding firms.

The European Chamber recommends prioritising economic growth to bring the government’s attention back to structural reforms and liberalisation of the economy. It needs to let market forces play a greater role in allocation of resources, as well as adopt economic policy measures that concentrate on reviving domestic demand. Security-related policy measures should be proportionate to the risks involved. The paper suggests measures to make investing in China more attractive and emphasises that all firms, no matter their size or ownership structure, should be guaranteed a level playing field on which to compete. Regarding labour mobility, the European Chamber regards expanded visa-free travel as an important EU-China goal and calls for actions that improve the work environment of both the domestic and expat labour force. The position paper commended measures to improve the possibilities for firms to take advantage of renewable energy options. It also proposes that regulations related to data security and cybersecurity be clarified and harmonised, and that intellectual property rights and their protections be improved. The report generally points to the need for deeper cooperation among Chinese officials, various industrial branches and chambers of commerce in improving the country’s business environment and making China again an attractive investment destination.