China must not take the commitment of European companies for granted and needs to do more to ensure a level playing field for foreign business, the European Union Chamber of Commerce said on Tuesday.
Corporations remain optimistic about China's growth prospects, but are wary about the near-term outlook for profits and are very concerned about regulatory uncertainty, according to the chamber's annual confidence survey.
Out of more than 400 respondents, 68 percent said they expected China to be a Top 3 destination for their company in five years, up from 64 percent today, and almost half planned to make big new investments over the next two years.
"But this massive commitment to the Chinese market is not unconditional. If perceived risks materialise to a great extent, the presence and commitment of our members may disappear," Jacques de Boisseson, the chamber's president, told reporters.
He said the group was not setting conditions and had been reassured by a meeting in April with Premier Wen Jiabao, who promised there would be no discrimination against foreign firms.
"But the Chinese authorities shouldn't take the presence and commitment of European companies for granted," de Boisseson said.
Forty percent of respondents thought that the application of government policies would be even less fair for foreign companies in two years' time, the survey showed.
"We don't want to have to vote with our feet to be heard by the Chinese government," de Boisseson added. "But the perception today is one of concern, and we look forward to the premier's words being translated into deeds."
Only one EU firm out of five in China feels that Beijing is implementing the promises it gave when it joined the World Trade Organisation in 2001 in the spirit of the accord.
"The perception of our members is that China is not playing the game and that it's going in the wrong direction," de Boisseson said.
NOT SO ATTRACTIVE
Among obstacles cited by EU firms is a belief that they are subject to stricter enforcement of laws and regulations, such as those protecting the environment, than their Chinese rivals.
Opaque and burdensome registration processes as well as the protection of intellectual property are other top concerns.
"These persisting regulatory challenges temper the attractiveness of China as a long-term investment destination," de Boisseson said.
Still, local protectionism and anti-foreign sentiment ranked only fifth in the survey among the risks of doing business in China.
Top of the list was fear of a slowdown in the global and Chinese economies, followed by stiffer competition from local firms and rising labour costs.
While 78 percent of respondents were confident overall about the growth outlook, up from 65 percent last year in the middle of the global crisis, only 34 percent expressed optimism about their profitability over the next two years — the same as in 2009.
"It's surprising and worrying that no more respondents feel more optimistic than they did a year ago," de Boisseson said.
Growing competition from Chinese firms is putting a bigger damper on sentiment than fast-rising wages.
"Rising labour costs are not perceived per se as a problem by our members, provided they go along with a growing market," de Boisseson said.
Similarly, he said survey after survey had shown that the yuan's exchange rate was not a big issue for the chamber's members because they are mainly focused on the domestic market.
