China Research

On June 10 this year, the European Chamber of Commerce in China (EUCCC) presented its yearly Business Confidence Study. Although the glass still is half full many European business feel that the protracted Chinese economic slowdown has become a top business challenge. Pessimism about growth and profitability leads many to significant cut-backs, particularly through headcount reduction: Two fifths are planning to cut costs—a large jump from less than just one quarter in 2014—with most of them planning employee lay-offs.

At the same time China remains a key market and thus European companies want and welcome the ‘new normal’, which means slower but better qualitative growth with consumption as the primary driver of economic growth. To achieve this China wants to move its economy up the value chain. However, European business representatives feel that the regulatory framework has yet to come into place. In particular, a better implementation of the rule of law is seen as the top driver for China’s economic development moving forward, according to the Business Confidence Survey.

The Chinese economy is now entering a paradigm shift, necessitating for the Chinese Government to quickly discard its ‘old toolbox’ of high, fixed-asset investments and export-driven growth, which has created unprecedented overcapacity levels and debt burden in many sectors. In a long-term perspective, China’s economy clearly has room for much more growth. Therefore the vast majority of European business sees China as a key market in which they wish to remain and to grow with.

Innovation will be one of the most critical drivers needed to move the Chinese economy up the value chain. European companies are part of this process, but less than one third of them have an R&D centre in China and for the most part these R&D centres are first and foremost used for product localisation. Innovative companies would contribute more to the Chinese economy if they felt more secure from threats like import substitution and technology transfer attempts, were given better protection under China’s intellectual property rights (IPR) laws through improved enforcement, and their innovative drive and productivity was not curtailed by domestic restrictions to Internet access.

It is the view of the European Chamber in China that it should not matter for a government which kind of ownership of companies conducts R&D, creates work opportunities and generates tax revenues as long as these activities are within the jurisdiction of that particular government.

Success of Chinese reforms and the restructuring of the economy and the society as a whole need the participation of all. European companies are committed to be part of economic growth going forward but are expecting to be equally treated to Chinese companies, and they take for granted that China will create a level playing field for all – so that the market forces will be able to play the decisive role in economic life that China has asked for.

Mats Harborn
Vice Chairman, European Union Chamber of Commerce in China (EUCCC)

Back to Start Page