BOFIT Viikkokatsaus / BOFIT Weekly Review 2020/38

This week, the European Union Chamber of Commerce in China (European Chamber) released a Position Paper 2020/21 that makes hundreds of recommendations on corrective measures for various branches in order to improve the operating environment in China. The recommendations focus on removing barriers to doing business and creating a level playing field for companies where nationality or ownership structure would play no role in how firms are treated.

The opening up of Chinese markets to international firms has slowed in recent years. The European Chamber asserts that European firms operating in China must deal with a two-tier system. The first tier is characterised by no-go parts of the economy that operate entirely under government guidance. In these branches, the role of state-owned firms is enhanced, and foreign investment in such areas as renewable energy or high-tech industry is actively discouraged. Companies operating on the second tier experience a fairly level playing field and find regulation is applied consistently to domestic and foreign firms alike. Here, opening up of access continues and European investment is welcomed. The automobile industry is cited as a model example of an industry in which European firms have been granted a foothold.

On the other hand, opening in some branches has been largely illusory. For example, the “opening up” of the financial sector has dragged on so long that domestic players have occupied the market and actual competition is impossible. Access to the few remaining potential market niches is blocked through complex licencing and approval processes. European banks estimate that the already nearly non-existent market share of foreign banks will continue to dwindle. The report notes that the words of Chinese officials diverge increasingly from practice. Doing business has become politicised, which makes it harder to anticipate or cope with the operating environment.

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