European Companies Call for an End to Unequal Treatment of Foreign Investment in China

The European Chamber of Commerce in China believes that the revisions to four Chinese investment-related laws are not bold enough.

In a press release, the ECC says It is preferable for foreign and domestic investment to instead be regulated by the same Company Law, regardless of the nationality of the equity.

The ECC notes that this is particularly important in view of the ease with which Chinese companies continue to acquire assets in Europe in areas where EU companies do not even dare to consider investing in China.

“While the announcement of a transition from a registration system to one based on filing and incorporation of the negative list approach into the legislation is commendable, far more needs to be done to ensure that the current situation—characterized by asymmetrical market access between the EU and China—is resolved,” says the ECC.

Calls for reciprocity

EU business will therefore increasingly call on China to provide reciprocity. Attracting high-quality foreign investment is one of the most effective ways for China to ensure sustainable economic growth, so opening up faster with ambitious legislation on foreign investment is in its own interests.

Early this month, the ECC released its European Business in China – Position Paper 2016/2017 (Position Paper) in which it calls for reciprocity in openness to foreign investment and for market forces to play the central role in driving innovation and developing China’s economy.

The Position Paper outlines how the recent increase in investment into Europe has highlighted the sharp imbalance in market access European companies face in China. Chinese companies have successfully completed a number of eye-catching deals to acquire leading European companies in a wide range of areas—including banking, automotive, robotics and critical infrastructure—yet European business is still heavily restricted from making similar investments in China.

Leading to protectionism

While Europe welcomes foreign investment, this lack of reciprocity is unsustainable and could lead to protectionism and increased tension. Furthermore, with economic growth in China now largely dependent on public investment after growth in private investment dropped sharply during the first half of 2016, it is in the country’s own interests to loosen restrictions and offer full reciprocity. Doing so will also help to confirm that China supports globally accepted principles.

Due to the lack of progress in market reforms, the Position Paper recommends ‘dusting off’ the Third Plenum’s Decision and taking concerted measures to enable market forces to play the central role in China’s economy.

The European Chamber is concerned that as the Thirteenth Five-Year Plan appears to carve out a larger role for government in guiding China’s economy, market reform is no longer a top priority.

“This could seriously damage China’s ambitions to establish a vibrant market economy,” said European Chamber President Jörg Wuttke. “Government has an important role to play in supporting basic research, but it simply should not be responsible for directing capital. Instead, private enterprises should be given room to determine where the future opportunities lie.”

The European Chamber therefore continues to advocate for the necessary market-orientated reforms to be pushed through, without further delay.

“Finalizing an EU-China Comprehensive Agreement on Investment in 2017, which provides full reciprocity through an ambitious market-opening component, is an essential part of the reform agenda,” says  Wuttke.

 

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