European firms in China urge fairer treatment, return of workers

European firms called on China to allow competition in the large sectors of the economy still effectively closed to foreign companies and de-politicize the business environment.

With state-owned businesses having uncontested control over half the Chinese economy, and an increasing presence overseas, the government should embrace competitive neutrality, the European Union Chamber of Commerce in China said in its annual position paper. China should also allow the return of foreign workers locked out of the country since the emergence of the Covid-19 pandemic.

European firms drawn to China as home to a fifth of the world’s consumers are getting drawn into political issues as well as friction over a lack of reciprocity in trade and investment terms. While parts of the economy are opening up, the entrenched position of many local businesses mean foreign companies get access to little more than crumbs in some sectors, the European Chamber said.

According to the chamber, the more market-driven half of the economy also includes saturated sectors that China has unlocked purely to perpetuate a narrative that it will open its doors wider to foreign investors. It specifically cited the lifting of equity limits on foreign firms investing in Chinese financial services.

“The fact that the reform took place so late in the game made it more akin to letting foreign investors onto a railway platform only after the train had long since departed,” the report said.

The European Chamber represents more than 1,700 foreign companies and issued more than 800 recommendations to the Chinese government in the report.

In contrast to recent media reports about foreign firms pushing to leave China, the report emphasized that many European firms want to stay and expand their position in the country. However, Chinese actions and policies were dragging down business sentiment, and even in sectors such as insurance which are now open to foreign firms, the regulatory hurdles are still high to developing new business.

“The enduring and growing challenges facing European companies in this half of the economy are depleting business sentiment,” the position paper said. “In the wake of the Covid-19 outbreak, new obstacles have emerged that have left Europeans feeling decreasingly welcome in China.”

The chamber called particular attention to the fact that many of its members’ employees are still unable to return after China effectively closed its borders to foreigners in late March due to the pandemic. The restrictions are having knock-on effects, with hundreds of teachers at international schools unable to enter the country as well as foreign employees of Europe’s companies.

This contrasts with the situation in Europe, where nearly all EU member states kept their doors open to Chinese nationals, the report said. This lack of reciprocity from China was a common theme across the report, not just with regards to immigration.

“Closing the gulfs between rhetoric and reality, market potential and market access, and the positive progress in China’s private sector and the regression of the state-owned sector, is in China’s immediate and long-term interests,” said Joerg Wuttke, president of the chamber. “European companies and their technology and expertise are ready to act as the transition catalyst that China needs to continue down the development path to fulfill its huge potential.”

With Chinese industrial technology “overwhelmingly behind Europe, Japan and the U.S.”, the mainland needs to bring in other partners to survive a decoupling from the U.S., the report said.