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European Business in China - 2021 Business Confidence Survey Summary

Dear CBI members and stakeholders,

Please find bilingual summaries of the 2021 EUCCC Business Confidence Survey below:

Key findings

Prospects, last year, seemed quite gloomy: an early 2020 survey, conducted jointly by the European Chamber and the German Chamber of Commerce in China, found that half of respondents expected 2020 revenue to drop year-on-year (y-o-y), and a mere 0.5% anticipated revenue growth. In fact, only a quarter of respondents to the BCS 2021 reported revenue declines and 42% experienced growth. Strong performance was indicated in other areas as well:

• Three out of four respondents turned a profit in 2020, the same proportion as the last five years, demonstrating that even in challenging times, European companies adapted and found success.
• 68% are optimistic about future growth, a significant 20 percentage point increase y-o-y.
• Commitment to the China market remains strong – a mere 9% of respondents are considering shifting any current or planned investment out of China, the lowest share on record.

Yet, as geopolitical tensions grow, companies are looking for ways to decrease their exposure, particularly to possible cross-border disruptions resulting from either the trade war or the ongoing technological divergence between China and the west.

• Only 21% of manufacturers reported that they do not import critical components. Meanwhile, a third import components or equipment for which there are no viable alternatives. The rest can find other solutions, but at higher costs, lower quality and/or with compatibility issues.
• In response, over a quarter of manufacturers are onshoring at least some of their supply chains, five times as many as are offshoring.
• European companies in joint ventures with local partners are strengthening their positions, with 27% increasing their shares, and two thirds are taking full ownership or a controlling share.

Meanwhile, as China’s reform agenda continues to lag, and external risks surge, it is imperative that reform efforts accelerate and long-standing regulatory challenges are resolved to offset emerging ones.

• Market access barriers are reported by 45% of members, a marginal increase from the 44% that felt the same in 2020.
• Unequal treatment persists for 47% of respondents.
• SOE reform appears to have stalled, with only 15% of respondents expecting the private sector to gain opportunities at the expense of the state-owned sector, and 48% expecting the opposite.
• Compelled technology transfers persisted for 16% of respondents, the same as 2020 despite the Foreign Investment Law coming into force.
• A third of respondents have been negatively impacted by the new regulatory requirements related to “critical information infrastructure” and “autonomous and controllable technology”.

“Our members’ long-term commitment to the China market paid dividends in 2020, but geopolitical tensions are forcing us to reconsider our strategies here,” said Charlotte Roule, Board Member of the European Chamber. “European companies are not decoupling by leaving China, but instead are considering which cross-border ties between China operations and global ones can and must be cut.”

“European companies both contributed to and benefited from China’s strong and speedy economic recovery," said Denis Depoux, Global Managing Director of Roland Berger. "If given the right opportunities, they are ready to deepen their positions here, and have a wealth of technology and expertise to drive not only growth, but also help with China’s decarbonisation goals and its industrial upgrade."

Download 2021 EUCCC Business Confidence Survey Summary CH

To download the full Report please click here.

Our thanks to the EUCCC for kindly sharing this information.

EU-China CAI Summary

Dear CBI Members and Partners,

A very happy 2021 to you all.

Please find a summary sheet below of the recently concluded EU-China CAI.

Download 201229_China_investment_factsheet_final

Press Link: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_2541

 

 

 

European Chamber of Commerce launches 2020 China Position Paper

The European Chamber of Commerce China released the 2020 edition of its position paper today. The Chamber’s annual publication puts forward over 800 detailed recommendations for improving the business environment, spread across 34 industry sectors and horizontal issues. The Position Paper details how persistent issues, such as limited market access and a complex regulatory environment, prevent European businesses from contributing fully to China’s sustainable development.

In this year’s edition, the EUCCC comments on how although European companies remain committed to the market, a number of ‘dichotomies’ that have emerged in recent years raise questions over which direction China will eventually decide to move in:

• The ‘one economy, two systems’ model, which divides the private and state-owned economies
• The country’s economic potential versus its market access regime
• The persistent divide between China’s rhetoric and the reality on the ground
• The clash of China’s charm offensive towards European business and its ‘wolf warriors’ in Europe

The EUCCC also calls on the European Union and China to secure a political agreement on the Comprehensive Agreement on Investment (CAI) by the end of 2020, commenting that “a half-baked deal that leaves the most critical issues unaddressed would be unwelcome and futile. Instead, it must deliver tangible results and secure open and fair markets on both sides to bolster the relationship and lay the groundwork for further productive engagement.”

Joerg Wuttke, president of the European Union Chamber of Commerce in China said: “Having inked bold economic agreements with numerous diverse partners in recent years, it is not revolutionary that the EU should expect a market that is as open and fair as its own when entering into such an agreement with China […] After more than 30 painful rounds of CAI negotiations, there’s a real sense that this is now or never.”

To read the report in full, please follow the link.

European Chamber China Position Paper Launched

The European Union Chamber of Commerce in China today released its European Business in China – Position Paper 2019/2020 (Position Paper), which delivers over 800 detailed recommendations to the Chinese Government, spread across 33 industry sectors and horizontal issues. Each recommendation represents a piece of the overall reforms that are urgently needed to improve China’s business environment. The report focuses in particular on the need for SOE reforms, which are crucial to the country’s future development.

While China’s market continues to inch open to foreign investment and the business environment marginally improves year after year, these advances have not been enough to offset the resurgence of the state-owned economy and mitigate the subsequent effects, such as the drying up of private-sector financing and flagging national productivity.

Fortunately, some of China’s top leaders have recently been discussing the idea of ‘competitive neutrality’ – that all companies should be afforded equal treatment irrespective of ownership type. Making this concept reality and embarking on a programme of systemic SOE reform will be key to making the most of China’s entrepreneurial potential and accelerating its development.

The European business community has witnessed previous Chinese leaders pursue bold economic liberalisation over the last four decades and believes that its accumulated experience, as well as its far more sophisticated regulatory system, now put China in a strong position to move towards installing a free-market economy.

“Many steps have been taken to address the symptoms of China’s growing SOE problem, but meaningful results require that the causes be addressed,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Realising competitive neutrality would level the playing field—which currently favours state-owned firms over both local and foreign private ones—and lay a strong foundation for resilient long-term development.”

Download the full report here.

Please click here to view the Chinese press release.

Bayer brings green tech to Chinese agriculture

CBI member and German life sciences giant, Bayer has announced that it has partnered with China’s Ministry of Agriculture to launch China’s Enhancing Green Development Capability Plan.

Bayer’s agricultural division, Bayer Crop Science in China, will work with China’s National Agricultural Technology Extension Service Centre (NATESC) to operate a large-scale training programme across all of China to respond to the needs of green and quality development in Chinese agriculture. The project will officially get underway later this year, and will run for an initial five years.

Through sponsoring and co-launching the programme, Bayer hopes that China will be able to begin building its ‘green development capacity’, by developing the understanding of key players such as local officials, agricultural technicians, and executives in the ever-increasing number of Chinese agri-businesses.

Jesus Madrazo, Bayer head of Agricultural Affairs & Sustainability - crop science division, said, “There is broad recognition that China has made tremendous progress in not only advancing food security, but also the quality of what is grown, [so that] it is better for consumers and better for the environment. […] Bayer will remain committed to bringing innovative products and optimised integrated solutions for crops [to China], and provide training to farmers to help them master the most suitable methods and get better returns.”

Bayer believes that by increasing the prevalence of technology in agriculture and improving farmer’s access to data, levels of sustainability within Chinese agriculture will increase. As a result, the new Green Development Capability Plan places a heavy emphasis on helping growers to better understand the data from their own fields and to be able to use these insights to improve their farm management skills.

Speaking at the launch, Madrazo said, “Farmers today are more aware that they need to incorporate agronomic practises that are more precise, conserve natural resources, and produce more food from the same finite piece of land … over the next 20 years, there will be more innovative technologies to support farmers to practise sustainable agricultural production. […] combining advanced [seed] breeding technologies that makes seeds smarter and more productive, together with modern crop protection products that are friendlier to the environment, coupled with biological technologies that really help explore the power of microorganisms in the soil, will shape sustainability for the benefit of farmers, consumers and our planet.”

Lego building double digit China growth

CBI member, Lego released its figures for the 2018 financial year on Wednesday. The Danish toy manufacturer recorded strong double-digit growth in China, and accompanied the release with an announcement stating Lego’s intention to build on this momentum and open a further 80 stores across the Mainland.

Niels B Christiansen, Lego Group CEO said: “Expect [Lego] to open another 80 stores [in China] … our branded stores are a great place to deliver our play experiences and elevate our brand in China. We will continue to do more in China.”

Lego currently has 60 certified stores across 18 cities in China, but plans to expand the brand’s reach to a further 30 cities while opening these additional 80 Lego-branded stores.

The company’s growth is not being inhibited in China by its limited physical presence, however.

Lego has already developed effective means to extend the number of children it can reach in China, by partnering with Chinese e-commerce giants, JD, Tmall and Tencent. Establishing this additional online presence was a way of ensuring that the Lego brand managed to reach cities where the toy manufacturing company does not have a physical store.

Mr. Christiansen highlighted the role e-commerce is playing in Lego’s international expansion when addressing the company’s means and methods of selling into the Chinese market. “E-commerce and online sales from more traditional retailers will continue to grow and digitalisation will allow new and better ways to interact with retailers and also consumers. Lego will continue to invest in product lines with innovative products that really embrace digital and provide ‘fluid play’ where kids can actually jump between the physical and the digital.”

It is to this end, that Lego partnered with Tencent to develop a series of online video games set in the Lego universe, increasing the exposure of Lego’s characters in China. The partnership has been very successful, with Lego’s online digital materials being downloaded 600 million times over 2018.

Intesa Sanpaolo 'Greater Bay Area Innovation Road' highlights European business opportunities

 

The Italian banking group, Intesa Sanpaolo has launched its Greater Bay Innovation Road initiative in partnership with fellow CBI member, Deloitte. The mission aims to partner 14 Italian technology companies that are focussed on promoting internationalisation and innovation with Chinese partners operating within the “Chinese Silicon Valley” in Guangdong province.

The Greater Bay Area Innovation Road initiative (GBA) is the latest in a series of collaborative projects involving China and European partners. On the bilateral level, China is already working with Germany, France and the UK through a series of ‘CEO Councils’ to create new synergies between companies with the potential to deliver domestic infrastructural development through business to business engagement. The CBI serves as the Secretariat of the UK CEO Council, which recently entered its second year.

The Intesa Sanpaolo GBA presents another example that is illustrative of the point that China is taking steps to demonstrate its commitment to engaging with foreign partners to bring about market access reform and opening up. Furthermore, with the Italian Intesa Sanpaolo GBA focussed on connecting companies aiming to develop financial and technological partnerships, the German CEO Council focused on commodities and heavy industry, and the UK’s own CEO Council featuring companies predominantly drawn from the manufacturing and financial services sectors, it is clear to see that China is interested in engaging with Europe across a wide-range of sectors and ambitious regarding the width and breadth of its participation in the European markets.

Moreover, the Intesa Sanpaolo GBA initiative presents a good case example for companies based in the UK and European 3^rd markets trying to gauge China’s appetite for collaboration.

The Italian delegation features companies operating in a variety of sectors, including artificial intelligence, bio-technologies and component and semi-conducting manufacturing and assembly. The delegation will meet with 81 top-ranking Chinese companies to participate in talks and receive training on best practise when investing into China and Italy and carrying out research & development. The fact that for every individual Italian member company, China is interested in promoting five demonstrates clearly the appetite in the Mainland to engage with the European business community.

China’s Greater Bay Area has become a hot-spot for European investment in China in recent years, and UK companies are particularly well positioned to benefit. This is because the Bay Area is a start point of the Belt & Road Initiative, with the UK serving as one of the BRI’s end-points.

UK – China success stories are already emerging from the Bay Area. CBI member, Clifford Chance recently reported that it had advised Bank of China on a $1.83 billion bond deal in support of the Greater Bay Area’s infrastructural development. Engineering consultants, Arup are at forefront in providing solutions for infrastructure management, and recently delivered a major overhaul of Hong Kong’s sewage system. Small and medium sized companies are reporting success within the Bay too. Nottingham-based signage manufacturer and CBI member, Pearce Signs opened an office in Hong Kong in the August of 2018 and has successfully added Asia to its portfolio.

What examples such as the Intesa Sanpaolo Greater Bay Area initiative show is that big business to small, Chinese companies are looking to engage with European – and by extension – British businesses. Please find below some helpful links from organisations which work closely with the CBI’s office in Beijing on how UK companies can engage with the Greater Bay Area and the Belt & Road Initiative.

To read more about Intesa Sanpaolo’s Greater Bay Road Initiative, click here.

China – Britain Business Council – Belt & Road Case Studies Report

The EU SME Centre – Belt & Road Opportunities and Challenges

 

European Chamber of Commerce China Launches 2018 Position Paper

The European Chamber of Commerce in China launched their 2018/2019 Position Paper in Beijing last Tuesday.

Calling on President Xi and the Chinese Government to further market access, licensing and standards reforms, the paper focusses on the notion of ‘Reform Deficit.’

The European Chamber’s position is that China needs to make a more concentrated, efficient and sincere effort to expand the market access reform rhetoric which was set out by President Xi at the 2013 Third Plenum, at Davos in 2017, and at the 19^th Party Congress in 2018.

The Chamber believes, that many of the market access reforms which have been introduced at the national level are ‘too little, too late,’ or are undermined by lingering preferential policies towards Chinese companies at the provincial and city level. In addition to this, there is the issue that reforms in certain sectors are being implemented too slowly or are being implemented too quickly, and then adjusted and altered on too frequent a basis for EU companies to be able to adjust.

Across the 22 working groups consulted, there was almost unanimous concern surrounding issues related to: consultation and communication, standards setting, transparency issues, unclear regulations and unpredictable enforcement, and that China did not encourage the presence of SMEs in the market.

The paper concludes that European businesses in China still face significant shortcomings in the reform agenda that still need to be resolved.

Please find the paper here.

EUCCC Business Confidence Survey 2018 Launched in Beijing and Shanghai

 

On 20^th June, the European Business in China Business Confidence Survey 2018 was launched in Beijing and Shanghai to media and members.

The survey 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.

Please read English press release and Chinese press release.

2017/2018 EUCCC Position Paper: 'Action Not Words'

 

European Business in China Position Paper 2017/2018 Executive Summary

 

Background:

During his January 2017 speech at the World Economic Forum in Davos, Switzerland, President Xi Jinping presented China as strongly committed to economic globalisation. President Xi also stated that China would expand market access for foreign investors and level the playing field to make China’s market more transparent and better regulated.

Later that month, the State Council released the Notice on Several Measures on Promoting Further Openness and Active Utilisation of Foreign Investment (Guofa [2017] No. 5, State Council Document No. 5 or Circular 5).  European business recognises the level and significance of these public commitments.

 Policy Goals:

In particular, the European Chamber attaches great importance to State Council Document No. 5, and sees it as the overarching principle that will guide foreign investment reform for the short to medium term. In it, 20 broad policy goals are categorised under three key themes:

1. Take further steps to open up to the outside world.
2. Further create an environment of fair competition.
3. Further strengthen efforts to attract foreign investment.

 Actions not just Words:

It is only natural that China advocates this view of globalisation, having benefited so much from it since its WTO accession in 2001.

However, while European business fully embraces the basic framework of State Council Document No. 5, it is suffering from accumulated ‘promise fatigue’, having witnessed a litany of assurances over recent years that never quite materialised.

By supplanting words with concrete actions and providing reciprocal access to its market for both trade and investment, China can send a strong signal that they are following through on their commitments to further open up to the world and establish a level playing field. This would also help to drive forward the economic reform agenda announced at the Third Plenum in 2013.

While there have been a number of highly positive developments clearly indicating that China’s leadership understands the task at hand, the Position Paper 2017/2018 shows many areas where more can be done, and provides constructive recommendations to the relevant authorities in order to help them achieve their objectives.

 Take further steps to open up to the outside world

In terms of its openness to foreign direct investment, the Organisation for Economic Cooperation and Development (OECD) ranks China in 59th place out of the 62 countries evaluated. There are reasons to be hopeful, however.

For example, significant improvements have been seen over the past year in the pharmaceutical industry, with authorities streamlining regulations and improving accessibility. As with the anticorruption drive, European business fully acknowledges the real progress China can make when there is consensus for reform.

This positive and forward-looking approach should now be applied to other industries that are potentially facing market closure.

For example, in the agriculture, food and beverage industry, shipments of food products, including some low risk ones, will require an official inspection certificate from a foreign government as of 1st October, 2017. Since the certification requirements for low-risk food products are out of line with international practice, this has the potential to dramatically reduce food imports.

Further create an environment of fair competition

The overall sentiment of ‘fair competition’ aligns perfectly with one of the European Chamber’s core advocacy points: achieving a level playing field for all businesses in China. However, there is a great deal that still needs to be done in this respect.

For example, in some areas foreign-invested enterprises (FIEs) are still only permitted to play a limited role in setting standards, or are barred altogether, and 54 per cent of European companies perceive they are treated less favourably compared to their Chinese counterparts.

China could go some way towards rectifying this situation by broadly adopting a more open and even-handed approach to communicating regulations, as displayed by the State Administration of Foreign Exchange (SAFE) in 2017. The SAFE met directly with European business to solicit feedback regarding the impact of tightened capital controls.

 

Further strengthen efforts to attract foreign investment

There is a right and a wrong way to attract foreign investment. European businesses make investments when capacities need to be established or expanded in response to market demand, not because an investment zone offering short-term financial incentives has been set up.

Companies are far more interested in the basics of predictability, transparency and the rule of law. Likewise, talented individuals are more interested in the soft environment, where air quality, access to schools and medical facilities, and a convenient transportation infrastructure meet their and their family’s needs.

Therefore the best approach is to embark upon a programme of deep economic, people-centred reforms that will enable sustainable growth – once this has been undertaken, more investment should follow.

If greater market access were granted, 56 per cent of respondents to the European Chamber’s Business would be more likely to increase their investments.

But the Chinese authorities continue to ring-fence foreign investment with administrative measures, including the 2017 Foreign Investment Catalogue and the 2017 Free Trade Zone Negative List, while progress on the EU-China Comprehensive Agreement on Investment is left waiting in the wings.

When weighed against the ‘tone at the top’ it is not clear why special rules and catalogues governing foreign investment are still being maintained at all, as they only serve to complicate China’s business environment and deter foreign investment.

It would be preferable instead to amend China’s Company Law so it applies equally to domestic enterprises and FIEs, and to establish a concise national negative list. 

Conclusion

European business needs China to succeed and is prepared to expand operations in the country. However, investment plans must be based on certainty.

The European Chamber will therefore continue to monitor the implementation of State Council Document No. 5 and related legislation, providing constructive feedback and cooperating with the Chinese authorities as they strive to establish China as an exemplar of economic globalisation.

To download the Paper please click here and follow to the link.