Foreign firms want action not words from China about opening up its markets, warns EU envoy

Brussels envoy highlights gap between Beijing’s rhetoric about free trade and the restrictions it places on foreign businesses

PUBLISHED : Wednesday, 04 October, 2017, 9:34pm
UPDATED : Thursday, 05 October, 2017, 10:31pm

Foreign businesses are becoming increasingly frustrated by Beijing’s lack of action to open up its markets, according to the European Union’s envoy to China.

“It is leading to more frustration among the [European] business community that they haven’t seen their words translated into action,” the EU’s ambassador to China Hans Dietmar Schweisgut told the South China Morning Post.

“Companies see the rising gap between rhetoric and what’s happening.”

President Xi Jinping delivered a speech at the World Economic Forum in Davos in January firmly endorsing free trade and has promised to further open up the country’s market.

The State Council had pressured its departments to work out a timetable by the end of September to ease market restrictions.

In the meantime, however, there are signs of new trade and investment barriers in China. Beijing suspended imports of some cheese products and required additional certificates for low-risk food imports from October 1.

Foreign firms are also complaining about the possibility they will be forced to make technology transfers in exchange for market access.

“Foreign companies are increasingly discouraged by the fact that policy announcements and the objectives [of market openness] are not translated into action,” the ambassador said.

“There is a more cautious attitude and more reluctance to take those announcements at face value.”

European Commission President Jean-Claude Juncker proposed to set up a screening framework for foreign investment in EU countries during his state of the union address on September 13, the same day that the United States banned acquisition of Lattice Semiconductor by a Chinese equity fund.

EU targets China with tough rules on cheap imports

Juncker’s proposal, which was made in response to pressure from the German, French and Italian governments, was interpreted as a countermeasure to the rapid inflow of Chinese investment designed to buy up hi-tech firms and know-how from Europe.

On Monday the EU also agreed on tough new rules to curb cheap imports, which Juncker described as an “anti-dumping measure” – although he insisted it was not aimed at any country in particular.

The takeover of German robot manufacturer Kuka by Chinese appliance producer Midea last year has prompted controversy in the EU due to concerns about public security.

Meanwhile, there is growing discontent about the lack of reciprocity, with the almost unlimited investment possibilities in the EU for Chinese investors compared with the restrictions foreign investors face in China in fields such as cars, health care, insurance and telecoms.

So far the EU does not have an agency like the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments, but its member states have set up or tightened their own investment legislation.

The EU ambassador said the proposals were designed for security and to protect public order and where not directed at any one country.

“This is not designed to be an instrument to restrict Chinese investment into Europe,” he said.

China’s investment in the EU last year grew by 77 per cent compared with 2015 to 35 billion (US$41 billion).

Much of that came from state-owned enterprises in industries covered by the nation’s Made in China 2025 strategy to bolster its hi-tech strength, according to a report by the European Union Chamber of Commerce in China.

The EU’s investment in China fell for the fourth straight year to 8 billion, down 23 per cent last year, while its investment in the United States reached US$277 billion.

He said the EU’s investment into China was only a fraction of the EU’s investment into the United States, and there was great potential to expand EU investment into China.

“In the future, if you look at the size and importance of our economies, it would be a huge waste of opportunity not to fully utilise this potential,” the envoy said.

“And it can only be utilised if China opens [its market].

“Our market is open and China’s market needs to be equally open. The current situation cannot go on forever. Otherwise it is bound to lead to a backlash.

“We are looking for equal opportunities. There needs to be reciprocity in market access. This is not linked to the investment screening. European companies should have the same opportunities as Chinese ones [in Europe].”

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The question of how to lower barriers to market access is also expected to be an area of contention during talks about a bilateral investment agreement between the EU and China.

Talks about the proposal – known formally as the Comprehensive Agreement of Investment – started in November 2013 and the latest round of talks will take place in October.

Similar talks about a bilateral investment treaty between China and the United States ended in stalemate last year, with the US expressing dissatisfaction at the number of market access restrictions the Chinese wanted.

“Having the right substance and a solid agreement is more important than speed. We hope we can move to the decisive phase soon to exchange the negative lists [on market access limitations],” the ambassador said.

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“We have a strong agenda between China and the EU. At the same time relations between China and the 28 member states are also expanding. That is normal. That is also something we welcome,” he said.

“China is also engaged with some member and some non-member states in regional cooperation. There could be a risk if this is not only about advancing trade and concrete investment opportunities but interferes with EU competences and policies.

“We do not wish this cooperation to undermine the cohesion of the EU. It should instead be in line with the wider aspiration to advance the EU-China agenda.”

“I hope China will also in practice do what it is saying all the time, that it is supporting EU integrity. China should also counter such suspicions which have sometimes emerged,” he said.

“Our relationship is established on trust. The EU is a union of 28 sovereign member states, but it is also a union which wants to be treated as such. There is clear expectation that the cohesion and identity of the EU is fully respected,” he said.