European firms prefer talks to tariffs on China: Poll

European firms have the same complaints as American ones about China's unfair practices that disadvantage them, but they reject the US use of trade tariffs to try to change Chinese behaviour.

Instead, they would like the European Union (EU) to conclude soonest an investment deal with the Chinese to address these issues, European Chamber of Commerce president Mats Harborn said yesterday at the release of the chamber's survey report on business confidence in China.

Apart from an increasingly difficult business environment, the survey found that European companies are also facing growing competition from Chinese firms as these become more innovative and responsive to market conditions.

Almost half of the 532 respondents said that doing business in China has become more difficult over the past year. The reasons include regulatory barriers including administrative issues, discretionary enforcement of rules and regulations, market access barriers and investment restrictions, and product licensing requirements.

These barriers come with real costs, said the report, with 46 per cent of respondents saying they missed out on business opportunities as a result. The industries most affected are pharmaceuticals, legal services and financial services.

Other issues of concern cited include "unfair technology transfers" as well as the Made in China 2025 industrial policy to move China up the global value chain that comes with subsidies and other measures which tilt the playing field in favour of Chinese companies.

These two issues are key reasons - apart from a huge trade deficit - that led the US to announce punitive tariffs on Chinese imports, and China to counter with tit-for-tat measures, bringing both sides closer to a bruising trade war.

Another finding is that European firms, for the first time, see their Chinese counterparts as equally or more innovative. Reasons include Chinese firms' increased spending on research and development, high-tech acquisitions and swift response to the greater demand for high-quality goods and services by China's rising middle class.

Noting that Chinese firms have become stronger and more competitive, Mr Harborn said that it was time for China to "lift or reduce pampering" of these companies so that they can become champions under more open and fair competition.

However, he thought that using tariffs as a "blunt tool" to get China to fulfil its promise to reform and open up was too costly. It disrupts the global supply chain and companies' production systems, and could stop the current boom in the business cycle in its tracks.

Instead, he said, European firms' concerns should be addressed by engaging China through the World Trade Organisation and through dialogue.

The chamber also hopes that an investment deal now being negotiated between China and the EU will help to address market access issues and other key concerns of European firms.

Mr Harborn said the deal should "ideally conclude at the end of this year".

"The European way of engaging through the multilateral mechanism and of taking a long-term approach to these fundamental structural issues is the correct way forward," he said.

The survey found some progress, including in protection of intellectual property rights.

With the political milestones of the Communist Party's 19th national congress last October and crucial parliamentary sessions in March out of the way, China should now be able to "start delivering on its promises", Mr Harborn added.

A version of this article appeared in the print edition of The Straits Times on June 21, 2018, with the headline 'European firms prefer talks to tariffs on China: Poll'. Print Edition | Subscribe