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European Chamber report highlights gulf between China’s dynamic economy and its burdensome regulatory environment
Published on: 2018-06-26
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webwxgetmsgimg 2European business continues to face significant operational difficulties in China. The European Chamber’s Business Confidence Survey 2018 reveals that doing business became more challenging over the past year due to longstanding regulatory barriers, market access restrictions and unequal treatment. New challenges are also on the horizon. European companies must now compete with Chinese firms that are more innovative than ever before. Yet they have remained resilient, delivering strong financial results for the second year running.

webwxgetmsgimg 1The European Union Chamber of Commerce in China released its Business Confidence Survey 2018 in Tianjin on Tianjin June 25th. Significantly, the result shows that a majority (61%) report for the first time ever that domestic firms are already equally or more innovative compared to European enterprises. This is due to a number of factors, including increased R&D spending and targeted high-tech acquisitions by domestic companies, as well as a swift response to the greater demand for high-quality goods and services from China’s rising middle class.

webwxgetmsgimg 3The report also finds that while respondents performed well financially in 2017, doing business has become more difficult. This encapsulates the rising contradiction between China’s increasingly sophisticated economy and its highly cumbersome regulatory environment.

webwxgetmsgimgRespondents’ concerns with regulatory barriers were apparent throughout the survey, many of which also affect domestic firms:

• Internet restrictions have a negative economic impact on 64% of respondents.

• 46% of respondents say they missed out on business opportunities as a result of regulatory barriers or market access restrictions.

• 46% of respondents expect the number of regulatory obstacles to increase over the next five years.

webwxgetmsgimg 8These barriers come at a real cost, especially for small and medium-sized enterprises (SMEs) as they do not have the resources to mitigate them. A worrying 50% of SMEs say that they missed out on opportunities representing more than 10% of their annual revenue as a result of regulatory barriers and market access restrictions.

webwxgetmsgimg 6As for Tianjin specific question part of the survey result, it shows that only 31% of Tianjin local members are satisfied with the communication between local government and business community. Transparency and policy consultation (time period allowed for feedback) have topped the list of areas needed improvement. The report also indicated that a 97% of members think Tianjin's air quality has improved over the past two years due to enforcement of environmental law. There were questions about Jing-Jin-Ji integration as well where an increasing number of members perceive the ongoing Jing-Jin-Ji merger has an influence on their strategic business decisions.

webwxgetmsgimg 4European businesses are seeking concrete implementation of measures that address their concerns. A well-negotiated EU-China Comprehensive Agreement on Investment (CAI) would send a clear message that China is committed to creating a positive business environment for all, and would help give European investors the confidence to expand operations. Should greater market opening take place, 57% of respondents said they would be likely to increase their investments in China. And around 60% of Tianjin local members showed the tendency to invest more in China if greater market access were granted and would keep staying in Tianjin if they were to expand business activities.

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