BEIJING (AFP) - China's financial sector is not open enough to foreign participation and key obstacles remain to investment, a top European Union official said on Tuesday.

"Chinese banks are some of the biggest and most powerful banks in the world," Michel Barnier, European commissioner for internal market and services, told reporters.

"They shouldn't and do not fear competition," he added.

Barnier spoke at the end of a visit to China for talks with officials, including Finance Minister Lou Jiwei.

The 28-nation EU and China announced in late November the launch of negotiations for a landmark investment agreement, even as they clashed bitterly last year over commercial disputes ranging from Chinese solar panels to European wine.

Barnier complained that foreign banks take up a mere two per cent of the Chinese market.

"So there is definitely room for progress," he said, adding that more openness in China's banking sector is in its own interest.

"We hope that European banks can be welcomed in China as we welcome Chinese banks in Europe," he said.

Barnier cited as obstacles restrictions on investment levels in joint ventures and the difficulty in obtaining licences for banking or insurance activities.

"It's difficult to get licences," he said. "There are many difficulties for foreign companies because of these controls or restrictions. These are obstacles to the participation in the Chinese market."

Barnier, however, praised as progress an emphasis on "rule of law" in decisions taken by China's ruling Communist Party at a key meeting in November, that made commitments to various social, economic and legal reforms.

"This is a very good thing," he said, also praising China's opening of its auto insurance market to European and other foreign companies.

EU trade chief Karel De Gucht in November urged the bloc to defend itself more aggressively against China, saying it would not "get anything from the Chinese by being polite".