European companies in China report that restrictions on doing business have increased since 2014. The recently published Business Confidence Survey 2016, compiled by the European Union Chamber of Commerce in China (EUCCC), shows that doing business in China has become more difficult. In an interview with Club China EUCCC president Joerg Wuttke expresses his hope for positive action in Beijing, more specifically for the “implementation of the reform promises that were made three years ago”.
The Business Confidence Survey 2016 brings together the input of over 500 senior representatives of the European Chamber’s member companies to provide an annual overview of their performance and outlook from within the Chinese market. »
Barriers to doing business
The barriers to doing business mentioned most often concern government relations and the Chinese regulatory environment. Bureaucracy and the lack of transparency in legislation are the most common hurdles. Finding and retaining competent personnel, licensing and law enforcement also present challenges. The report shows that European companies regard China as “a business environment that is increasingly hostile combined with a playing field that is perpetually tilted in favour of domestic enterprises means the effects of the slowdown are intensified for European business. Beijing’s failure to deliver on promises that foreign-invested enterprises (FIEs) will enjoy a more open, competitive market has triggered a fresh wave of pessimism, with 41% of European companies now re-evaluating their China operations and planning to cut costs, including through headcount reduction.”
Joerg Wuttke, the President of the European Union Chamber of Commerce in China, agrees that the assessment in the Business Confidence Survey 2016 seems somewhat dark. “It was the responses from many of our members that led to this more pessimistic assessment. Particularly in areas like pharmaceuticals, healthcare equipment and procurement we see a worsening situation. The frustration is also palpable as there has been little follow through on promises made by the Chinese Government in late 2013 to open up the economy.”
Why has doing business in China become more difficult?
“There are of course ‘natural reasons’, like the slowing economy—which is affecting the manufacturing sector in particular—and many Chinese enterprises now being more competitive with improved products and services. While the latter is something EU companies might not like, it’s part of regular business. However, there is also a more nationalistic trend in policies in support of domestic innovation and high technology, and this is something that we lobby against.”
Have you brought forward the negative perceptions towards China’s business and government leaders?
“I meet senior leaders all the time – they are always courteous and receptive. This does not mean we can expect instant changes, though. China’s leadership takes our advice seriously, in large part because our suggestions are practical, but everything takes a lot of time. This is nothing unusual for Europeans who are used to slow reform efforts at home in the EU. But lobbying does pay off: 50% of the recommendations we made ten years ago have been adopted.”
What are the government actions or measures you hope for most?
“Implementation of the reform promises that were made three years ago – more room for market forces to drive efficient allocation of resources and economic development, and a reduction of market-distorting state intervention in the economy.”
To end on a positive note: do you have reasons for optimism for the business outlook in China in 2016 and later?
“The economy currently runs strong with 6.7% official growth, due to a massive credit expansion. Enjoy it for the next month as the rapid debt build-up will slow down the economy in late 2017 and beyond.”