As the United States and China teeter on the brink of an all out trade war and tit-for-tat tariffs loom, a European businesses lobby is urging Beijing to stop dragging its feet on reforms and using unfair trade policies to pamper Chinese companies.
Each year, foreign trade groups in China roll out a laundry list of concerns about market access, regulatory hurdles and other policies that tilt the playing field in the world’s second largest economy.
This year, for the first time ever, the European Chamber of Commerce’s annual survey of the business climate found that 61 percent of its 532 company members saw their Chinese counterparts as equally or more innovative.
Increased spending on research and development, targeted acquisitions of foreign high-tech firms and growing demand for innovative products from consumers were helping driving that shift, the chamber said.
The high response is significant. Policies linked to innovation and competition are a key part of the intensifying US — China trade debate and concerns of foreign companies operating here.
European Chamber President Mats Harborn said that as Chinese companies become stronger and more competitive, it is time for Beijing to “remove the training wheels.”
“It’s time for China to lift or reduce the pampering of its own enterprises and expose them to even more open and fair competition for them to develop into the champions that China wants them to be,” Harborn said.
Currently, Chinese companies account for 115 of the Fortune 500 list of global enterprises. The Chinese government claims that of the world’s 260 “unicorns” — start up companies valued at more than a billion dollars — more than 160 are from China.
Since Chinese President Xi Jinping delivered an address at the World Economic Forum in Davos early last year, China has repeatedly pledged to further open up the country’s economy.
According to the group’s survey of its members 52 % said that the government’s promises of opening up had yet to be realized. And looking forward, 46 percent said they thought the number of regulatory obstacles would increase over the next five years.
Harborn said that time is running out for China and 2018 has to be the year that it delivers on its promises.
“Dragging the feet on delivering on promises that have been made in China will cause reactions around the world,” Harborn said.
The United States response to that has led to reactions such as the $50 billion, and more recently $200 billion, in possible tariffs that Washington could levy on Chinese goods.
“We don’t agree with that action but it is the result of what we have warned about earlier,” he said.
Washington and European companies alike have long voiced concern about trade policies in China that protect domestic companies and State Owned Enterprises through subsidies, regulatory barriers and unequal treatment.
The Trump administration has alleged that Beijing is stealing American intellectual property and forcing technology transfers. Beijing denies that is the case.
Still, the European chamber’s survey found that about one in five of its companies “felt compelled to hand over technology in exchange for market access,” despite Chinese government assurances to the contrary.
According to the survey, 19 percent said they felt compelled to transfer technology.
Harborn said that while the percentage may seem small, the value it represents is much larger. Numbers were even higher among companies in the aerospace and aviation sector (36 percent), civil engineering and construction (33 percent) and automakers (27 percent).
“And no foreign company going to Europe has to even consider the issue of giving up technology for market access,” Harborn said.
Reciprocal treatment is a key concern from companies in China, regardless of whether they are from Europe and America. It is also a key aim of Washington’s trade dispute with Beijing and effort to make trade fairer.
But as the rhetoric in the U.S.-China trade dispute has heated up, some analysts argue that the focus has shifted too heavily to reciprocal and damaging tariffs. Actions that risk hurting not only the United States and China, but the global economy as well.
Harborn said confrontation through tariffs is not the most efficient way to get reforms and opening up that companies have been asking China to deliver.
“We are afraid that when you are exerting pressure this way [through threats of tariffs] that China keeps its aces up its sleeve and is presenting what is needed to defuse the tension at the time and is not addressing the fundamental and broader issues,” Harborn said.
Besides, he add, reforms are not only important for foreign companies but China’s own economic development as well.