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2007-11-23 | All chapters

European Cos Unhappy With China Business Climate
Jason Leow, Wall Street Journal, 23rd November 2007

Ahead of a crucial Europe-China summit, a new survey shows European companies may be increasingly unhappy with China's business climate, at a time when they also are reporting less profitability than their American competitors.

European companies told the European Union Chamber of Commerce in its annual business confidence survey that opaque and inconsistent government regulations in China have hurt them. The unhappiness also comes at a time when the stronger euro has eaten into their profits, with more businesses saying they aren't making money.

Joerg Wuttke, the chamber's president, told reporters at a briefing Thursday that while European companies are still upbeat about China, they also are concerned about a host of problems, including intellectual property abuses and arbitrary law-making.

'European businesses do well, but they could do better. People are less optimistic than last year,' he said.

Their grievances are likely to be heard at next week's EU-China summit in Beijing, where trade will top the agenda. The EU is China's largest trading partner but it has been increasingly upset at their growing trade deficit, which in the first eight months of the year grew to almost $150 billion, up from $117 billion in the same period last year.

The more difficult operating environment for European firms may also be raised at the summit, given the timing of this year's survey results.

Europeans companies surveyed point to the lack of government transparency as their biggest obstacle in doing business in China. They say it isn't always clear why some rules are implemented and often quite abruptly too. In the latest instance, one the survey didn't mention, the government told local banks to stop issuing new loans, an unexpected administrative edict.

Intellectual property issues also loom large. Half of the companies surveyed don't intend to set up research and development centers in China for fear of intellectual property rights abuse, a situation they say hasn't improved despite many years of government exhortation. 'There has been a lot of talk [on IPR protection] but not much walk,' Mr. Wuttke said.

This is the chamber's fourth annual survey. Unlike last year's survey, this one drilled deeper into some questions, said Charles-Edouard Bouee, managing director of Roland Berger Strategy Consultants.

His company helped poll over 200 European companies operating in China. The new findings may better reflect European business sentiment.

Fewer European companies surveyed - 61% - say they are profitable this year, in part due to the stronger euro that could be making European goods more expensive and operating costs higher, Mr. Wuttke said. Last year, 76% of European companies surveyed by the chamber said they were making money in China.

That situation contrasts somewhat with what American companies have reported. Some 80% of U.S. companies were profitable in 2006, according to the 2007 survey of U.S.-China Business Council member companies.

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