China should "walk the talk" when it comes to free trade and globalisation to be a true leader on these two fronts, said a lobby group a day ahead of the China-European Union summit in Brussels today.
China should further open up its market and offer a level playing field to foreign firms, said European Chamber of Commerce president Mats Harborn yesterday at the release of its annual business confidence survey.
Nearly half of the 570 firms who responded to the European Chamber's survey over a three-week period in February and March this year said they feel less welcome now than when they first came to China.
More than half said foreign firms are treated unfairly compared with their Chinese competitors. Notably, when it comes to environmental regulation, 61 per cent of the respondents felt foreign firms are subject to more stringent enforcement than Chinese ones.
As the United States turns more insular under President Donald Trump's "America First" policies, Chinese leaders have stepped up in recent months to champion free trade. But these findings - and an earlier survey - suggest a gap between rhetoric and reality.
Earlier this year, a poll by the American Chamber of Commerce in China revealed similar sentiments. In this poll, four out of five companies said they felt less welcome in China than before and 55 per cent of respondents said foreign firms were treated unfairly.
Besides unfair treatment, the European Chamber survey found that 60 per cent of respondents felt that by about 2020, Chinese firms would close key innovation gaps with foreign rivals, in a "wake-up call to the whole of Europe".
Some 56 per cent of the European firms surveyed said they would be more likely to increase their investments in China if given more market access. Giving European firms a level playing field will help China achieve a more sustainable economic growth and avoid the middle-income trap, Mr Harborn added.
Yesterday, Mr Harborn noted that European companies remain cautious about future investments.
"The asymmetrical relationship in FDIs (foreign direct investments) between Europe and China increased last year," he said.
Chinese investment into Europe grew 77 per cent to 35 billion euros (S$54.3 billion) last year compared with a year earlier, whereas European investment into China fell 23 per cent to 8 billion euros in the same period.
Companies had little confidence in China's short-term reform agenda, the chamber added. Only 15 per cent of these firms believe that regulatory barriers would be reduced in the next five years, while 40 per cent expected them to increase, it added.
Mr Harborn hoped negotiations on the Comprehensive Agreement on Investment, which will be part of the China-EU talks, will include a "strong market-opening component" that could pave the way for more European investments in China.
Some 56 per cent of the European firms surveyed said they would be more likely to increase their investments in China if given more market access.
Giving European firms a level playing field will help China achieve a more sustainable economic growth and avoid the middle-income trap, Mr Harborn added, referring to a phenomenon where fast-growing economies stagnate at the middle-income levels and are unable to move on to high-income levels.
UOB senior economist Suan Teck Kin told The Straits Times that China knows that it needs to continue to open up its market to more foreign competition to inject new ideas and new ways of doing things to keep its economy growing.
"It's already doing so, but it will pick and choose the pace and scope accordingly. It wants to be in control," said Mr Suan.
"This will be a long bargaining process as the Chinese also want some things from the Europeans in exchange, such as a lift of the arms sales ban," he added. The European Union had imposed an arms embargo on China in 1989, following the violent suppression of protests in Beijing's Tiananmen Square.