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2018-06-20 | All chapters

European Chamber report highlights gulf between China’s dynamic economy and its burdensome regulatory environment

European business continues to face significant operational difficulties in China. The European Chamber’s Business Confidence Survey 2018 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. 

Beijing, 20th June 2018 – The European Union Chamber of Commerce in China, in cooperation with Roland Berger, today released its Business Confidence Survey 2018. The report finds that while respondents performed well financially in 2017, doing business has become more difficult. This encapsulates the rising contradiction between China’s increasingly sophisticated economy and its highly cumbersome regulatory environment.

Respondents’ concerns with regulatory barriers were apparent throughout the survey, many of which also affect domestic firms:

  • Internet restrictions have a negative economic impact on 64% of respondents.
  • 46% of respondents say they missed out on business opportunities as a result of regulatory barriers or   
  • market access restrictions.
  • 46% of respondents expect the number of regulatory obstacles to increase over the next five years.

These barriers come at a real cost, especially for small and medium-sized enterprises (SMEs) as they do not have the resources to mitigate them. A worrying 50% of SMEs say that they missed out on opportunities representing more than 10% of their annual revenue as a result of regulatory barriers and market access restrictions.

European businesses are seeking concrete implementation of measures that address their concerns. A well-negotiated EU-China Comprehensive Agreement on Investment (CAI) would send a clear message that China is committed to creating a positive business environment for all, and would help give European investors the confidence to expand operations. Should greater market opening take place, 57% of respondents said they would be likely to increase their investments in China.

Significantly, a majority (61%) report for the first time ever that domestic firms are already equally or more innovative compared to European enterprises. This is due to a number of factors, including increased R&D spending and targeted high-tech acquisitions by domestic companies, as well as a swift response to the greater demand for high-quality goods and services from China’s rising middle class.

“Now that Chinese companies are clearly becoming stronger and more competitive, it is time for China to remove the training wheels in order to create a sustainable economy in the long term,” said European Chamber President Mats Harborn. “We have seen some improvements this year in areas such as law enforcement, but we are still far from an environment that fosters fair competition. This can only be achieved by building efficient institutions, creating modern regulatory frameworks and letting the rule of law fully play out.”

“An increasing number of European companies are observing a level of innovation in China comparable to Europe or America,” said Roland Berger Head of Asia Denis Depoux. “This can bring disruption to European business, but it is also a sign that time has come to leverage the strength of Chinese R&D, the business ingenuity of Chinese entrepreneurs, either to develop new applications, or to test them on an innovation-thirsty Chinese market.”

Download the report.

About the European Union Chamber of Commerce in China

The European Union Chamber of Commerce in China (European Chamber) was founded in 2000 by 51 member companies that shared a goal of establishing a common voice for the various business sectors of the European Union and European businesses operating in China. It is a members-driven, non-profit, fee-based organisation with a core structure of 31 working groups and fora representing European business in China. The European Chamber is recognised by the European Commission and the Chinese authorities as the official voice of European business in China.

About Roland Berger

Roland Berger is an independent company founded in 1967. Roland Berger remains the only leading global consultancy firm with non-Anglo-Saxon roots. We are German by origin, European by nature and global by ambition, including a strong footprint in Asia. Our entrepreneurial spirit has shaped our growth and fueled our outstanding achievements since the early days of the firm. In short, being a game changer is in our DNA. With nearly 50 years of continuous growth behind us and 2,400 employees working in 34 countries, we are one of the leading players in global top-management consulting and have successful operations in all major international markets.

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Xinhe Fan