The central government must deepen structural reforms, reduce intervention in the market and offer an equal playing field for foreign companies, the European Union Chamber of Commerce in China said yesterday.
It also warned that Beijing's recent investigation into European drug companies had fuelled concerns about unfair treatment of foreign players.
Chamber president Davide Cucino said that "too strong a presence" of government in many industrial sectors, such as telecommunications and banking, would hurt competition and hinder Beijing's efforts to sustain economic growth.
"Previously China could make a choice between economic restructuring and maintaining growth," he said in Beijing while releasing the chamber's annual position paper on China. "Now economic restructuring is necessary to maintain growth."
Cucino said the new leadership on the mainland had launched some reforms, such as simplifying government approvals for investments and approving the establishment of a free-trade zone in Shanghai.
But the chamber said a number of market barriers remained.
Beijing had adopted a nationalistic approach to indigenous innovation, while certain industry policies had favoured home-grown brands, it said.
Meanwhile, state-owned enterprises controlled key sectors of the economy and in many regards held monopolies over fundamental resources, which had led to preferential treatment and subsidies and suppressed competition.
Bruno Gensburger, chairman of the chamber's pharmaceutical working group, said it was hard to understand why mainland drug companies had been exempted from a corruption probe.
The central government recently launched corruption investigations involving GlaxoSmithKline and other drug companies. The authorities allege GSK employees gave at least three billion yuan (HK$3.8 billion) in bribes to doctors, hospitals and others. They also recently began investigations into French drug firm Sanofi.
Gensburger said any wrongdoing should be condemned, although he would not comment on individual cases.
But he added: "What I feel is a little bit unfair is that foreign companies that are most serious about SOPs [standard operating procedures] happened to be the most investigated and the most discriminated against. To my knowledge, no Chinese company has been investigated."