BEIJING (Dow Jones)--A European business group Wednesday expressed concern about growing protectionism in China and urged the country to continue to open its markets, end restrictions on foreign investment and cease intervention in industry.
"Over the past year, the European Chamber has noted a gradual slowdown - and in some cases a partial reversal - in the economic opening up process," said Joerg Wuttke, President of the European Union Chamber of Commerce in China.
"We are convinced that this is an ideal moment for China to adopt a new and bolder cycle of reforms, a move that would ensure that China maximizes its growth potential over the next five to ten years," he told reporters after the European business lobby released an annual position paper.
The paper highlighted some areas where China has made progress in opening its market to foreign participants and in freeing up its economy, citing changes allowing foreign banks to trade yuan-denominated corporate bonds, reforms to the oil product pricing system, and a healthcare reform plan. Foreign companies remain confident in the Chinese market and optimistic about their business prospects there, it said.
But the paper also outlined a range of grievances of European companies active in the vast and fast growing market. It said they increasingly concerned by a tendency of the Chinese authorities to favor local companies over foreign firms.
Barriers to entry to China's market, including capital requirements for establishing new businesses, licensing procedures, and forced joint ventures and ownership caps, also make China less and less appealing as an investment destination for European companies, it said.
European investors in high-technology and branded goods are more interested than ever in the Chinese market, but they are "extremely cautious" about further investment, the paper said.
Comments from China's Ministry of Foreign Affairs and the Ministry of Commerce on the position paper weren't immediately available.
Wuttke, speaking in an interview with Dow Jones Newswires, said China showed "a major reform drive" between 2001 and 2006 following its admission to the World Trade Organization, but it now lacks a "clear checklist" for future reform.
He said the E.U. business lobby has met with Chinese officials from all levels as well as think tanks to discuss its grievances and that feedback from the China side has been mixed.
On the one hand, there are open-minded people who contemplate changes needed for reform, but there are also some "government officials that are very strongly subject to interest groups and business associations on the Chinese side. They certainly don't want more competition and actually come up with schemes to exclude foreign firms from participating," said Wuttke.
He said reforms are not always high on Beijing's agenda when it's more focused on stabilizing employment and preventing an economic downturn. But a recent directive from the State Council to Chinese industry to curb overcapacity shows China is making some effort to deepen structural reform of the economy, he said.
Foreign companies are becoming increasingly frustrated by a lack of transparency in legislation and implementation of policy, he said.
In particular, member firms are concerned about the opaque manner in which the Chinese government handled its investigation of Rio Tinto PLC (RTP) employees, although they recognize it was an isolated case and wouldn't hurt overall investment in China, he said.
Wuttke was referring to China's recent detention of Rio Tinto executive and Australian citizen Stern Hu, on charges of bribery and infringing on trade secrets. Three Chinese nationals were also held.
"The definition of national interests is totally hazy," he said. That makes it hard for foreign firms to ensure that their corporate compliance procedures are in line with Chinese law, he said.
The chamber's report also mentioned China's "Green Dam" regulation on Internet-filtering software, saying it was promulgated with very limited consultation.
Beijing originally intended to enforce a mass installation of the software in personal computers, but scaled back the plan considerably following fierce resistance from foreign computer makers and Chinese Internet users.
The E.U. chamber also said China failed to give timely details about how it reviewed and blocked Coca-Cola Co.'s proposed acquisition of China Huiyuan Juice Group Ltd.
The Ministry of Commerce should have provided more much-needed guidance to the business community about China's policy regarding foreign acquisitions, the paper said.
Increasing transparency would also help dispel suspicions that decisions like the one on Coca-Cola were influenced by non-competitive factors or protectionist tendencies, it said.
