BOFIT Viikkokatsaus / BOFIT Weekly 2017/40

The European Union Chamber of Commerce in China released its annual position paper last month. The European Chamber expressed satisfaction with the comments of China's leaders with respect to increased openness and the government's calls last January for policies that make it easier for foreign firms to invest in China, offering new incentives for foreign investment, as well as taking steps to create a competitive environment that is fair to both domestic and foreign firms. Despite speeches and policy goals, however, little has been done to translate words into action. The European Chamber's Business Confidence Survey 2017, released this summer, found that only 15 % of its member companies expected regulatory barriers to operation in China to decrease over the next five years. The recent OECD survey of openness to foreign investment also ranked China 59th out of 62 countries surveyed.

The European Chamber found that China has reversed direction from opening up its economy in some areas, and expressed concern that the foreign firms are being closed out of certain branches. Among other things, China has introduced rules that favour domestic firms or domestic production, as well as increased trade barriers (e.g. the October tightening of permit requirements for agricultural products and food imports). The government has also purposefully enlarged state-owned firms, which has reduced room for private actors to participate in certain markets. Moreover, China introduced a cybersecurity law in June that has complicated the ability of foreign firms to do business.

While China has offered temporary advantages in selected special economic zones to attract foreign direct investment, the most important changes sought by European firms involve concrete implementation of reforms that improve basic conditions such as predictability of the regulatory environment, transparency and rule of law.