The China Chamber of Commerce to the EU (CCCEU)'s 2020 Recommendation Report, Acting for Common Future: Chinese Enterprises in the EU Striving for Growth amid Slowdown and Regulatory Hurdles, is the second annual report since its inauguration in April 2019 in Brussels. This year, we present Chinese companies' latest sentiment on EU business environment, their five major pressing concerns and focuses, as well as our eight solutions and recommendations for EU institutions.

2020 marks the 45th anniversary of the establishment of diplomatic relations between China and the EU. Looking back, an increasingly integrated EU and an open China have been driving forces behind globalization and multilateral trading system. As this extraordinary journey unfolded, Chinese companies have witnessed, participated in, and contributed to the growth of China-EU partnership since its early days. However, we have also noted an accelerating trend in market protection in recent years in general and since last year in particular.

As COVID-19 is wreaking havoc on growth, we have noticed a trend of a spillover and politicized approach to cyber security issues and investment screening, which could dampen the expectation of some Chinese companies and investors. By presenting this report, we hope that the EU could continue to build a highly effective regulatory framework and that market players from all countries, including China, can find ample and equal opportunities to thrive in the EU. Being treated fairly and equally, Chinese companies, alongside their European peers, will be able to continue to make contributions to Europe's employment, innovation, and recovery, help the continent emerge out of the unprecedented crisis.

Sentiment on doing business in the EU

Based on CCCEU and Roland Berger's surveys and in-depth interviews, the report finds, overall, Chinese companies in the EU have a slightly less favorable view regarding the ease of doing business in the bloc, with the total score dropping from 73 points in 2019 to 70 points. Close to 60% of survey participants cited "a slight decline", and 10% "a significant decline" when asked to assess the overall environment of doing business.

Participating Chinese businesses have somewhat less favorable views in three aspects concerning the ease of doing business: political environment, Macroeconomic & sector-specific environment, and labor market. 68% feel the EU has been tightening its China policy; 72% believe that the EU market is grimmer than last year; 55% experience more difficulties in hiring European and foreign talent.

On the contrary, they have more favorable views than last year of the EU's infrastructure and R&D sector: 56% see greater connectivity between China and the EU while 53% point out more smooth-running and frequent scientific exchanges and joint research. Their views on business environment in the EU stay unchanged.

Despite the general decline in the ease of doing business, Chinese companies did not slow down their endeavors in the EU. Between 2013 and 2019, the number of Chinese companies in Germany, Italy, the Netherlands, etc., grew at a compound annual growth rate of 10%. In terms of GDP contribution and patent transfers to the EU, Chinese companies have been catching up fast. Between 2013 and 2019, Chinese companies led foreign enterprises with more than 30% and 20% compound annual growth rates in investment-generated GDP in Germany and Italy and local patent applications in Europe, respectively.

The survey also finds, if the ease of doing business in the EU improves, 60% consider to invest more and close to 20% intend to increase "significantly." 

Chinese companies' 5 key concerns and focuses

First, their biggest concern are the COVID-19 outbreak and its fallout. The pandemic brings hardship to Chinese companies in the EU due to sharply reduced demand, disrupted supply chains, rising costs of transport and hindered flow of people. Nevertheless, they remain committed: over 95% of the Chinese companies in the EU did not lay off local employees. Meanwhile, Chinese ICT companies have been helping with telecommuting and other digital tools during the crisis.

Second, their biggest focus is on digital transformation and 5G security. Concerning 5G, some member states listed a number of non-EU, including Chinese, suppliers as high risk companies, though there is no evidence of any technical flaw concerning security. To restrict Chinese enterprises could potentially impair the market vitality of ICT and the EU's leading position in the global supply chain, which will only induce a "lose-lose" situation. In Europe, Huawei and ZTE have created around 20,000 jobs locally, and as many as 300,000 indirect job opportunities. With the COVID-19 pandemic wreaking havoc on economic outlook and business confidence, employment stability matters more than ever to people's well-being.

Third, both China and the EU are the most determined supporter of green development and sustainability, and it has become our common language and agenda, whereas some Chinese enterprises face barriers to enter Europe's green market. Chinese companies in the EU have leveraged their own strengths and experience in fields such as green 5G, new energy, electric vehicles, and ecological restoration. However, as there are some differences in standards and there exists some misunderstanding of China's low-cost-products and state-owned enterprises, China's renewable energy and green automobile companies face obstructions in entering the European market. Nevertheless, Chinese companies should take the European Green Deal as an opportunity as well as future development direction, providing more green technology and product to the EU while taking sustainability as a priority.

Fourth, while implementing an overlapping review system, to a certain degree, the EU has put some Chinese enterprises at a disadvantage. Chinese enterprises, especially state-owned ones, are likely to face a set of complex scrutiny measures when investing in the EU, such as antitrust review, foreign investment screening, and foreign subsidy review, which have been nicknamed by some Chinese companies as "three mountains" that hinder their normal business operations. There has been some instances that there are more qualitative standards than quantitative standards applied in these regulations, which may lead to discretionary power. We hopethe EU to insist on taking an objective stance, and treat all enterprises equally in accordance with the principle of competitive neutrality.

Fifth, local business activities of Chinese enterprises in Europe are becoming deeper and more diversified, but they still need to work to gain a better understanding of the EU market policies. Some Chinese enterprises still find it difficult to fully understand the laws and regulations of the EU. They also face obstacles like insufficient communication and lack of high-end talents. Some of them have experienced red tape in work permits and less mutual recognition of standards. It would be ideal that the EU to further improve and coordinate with member states in the ease of the business environment for Chinese enterprises. Policy recommendations for EU institutions

We propose eight recommendations for EU institutions with a view to encouraging dialogue and discussions and helping provide more Chinese companies with an opportunity to access the EU market in a more balanced, and reciprocal basis, which would eventually benefit the EU itself

1) We hope the EU could strengthen the political will to raise mutual trust with China and alignment in long-term objectives and policy planning. Now is the best time for China and the EU to engage with long-run objectives and policy plans as Beijing is preparing its 14th Five-Year Plan of economic and social development as well as the modernization scheme for 2035, while Brussels is in green and digital transition and setting the stage for a two-year conference on the future of Europe.

2) We think it is in our best interest that the EU could act responsively and work with China to revive the global economy and prevent the health crisis from causing prolonged socioeconomic damage across the world. We must minimize its impact on our lives. We can do so through producing vaccines and other public health products and strengthening collaborative mechanisms in prevention and response. Chinese companies in Europe can play a bigger role in this regard. Additionally, Chinese and European companies can work together to provide assistance to Africa and other less developed and fragile regions.

3) To help prevent politicization of cyber security issues, initiating thorough dialogue with China and signing agreements of mutual trust stay pressing. Both China and the EU will benefit from open, uniform, and transparent rules of screening and certification for all suppliers.

4) We advice the EU to refrain from overregulation and excessive screening, and all forms of trade and investment protectionism. It is only in the EU's best interest to reduce unnecessary screening with better understanding of Chinese enterprises, and eliminate overregulation to encourage Chinese enterprises to be a part of the development story across the EU. The cost of FDI (foreign direct investment) into the EU will rise and procedures will be more complicated after the measures set out in the White Paper "on levelling the playing field as regards foreign subsidies" are translated into law. Feasibility studies are suggested before the EU adopts the news laws and regulations on trade and investment activities.

5) It is our sincere hope that the EU work closely with China to conclude negotiations on the EU-China Comprehensive Agreement on Investment (CAI) by the end of this year, turning the agreement into action as soon as possible and creating new opportunities for enterprises on both sides. On top of this, we hope negotiations for an FTA will be launched as soon as possible to further strengthen bilateral economic and trade cooperation.

6) Economic and trade agreements achieved by the two sides could be implemented in a creative way by strengthening cooperation between the public and the private sector. Efforts are needed to establish a platform for multilateral cooperation to facilitate the participation of Chinese enterprises in the EU's economic transformation and post-pandemic recovery plan. Establishment of trust between the two sides is needed in the China-EU Public-Private-Partnership to help economies recover from COVID-19 and innovatively support the implementation of key agendas on digitization, green development, and financial fields. The two sides could take the lead in setting up the foundation by encouraging financial institutions and other private actors to participate.

7) We believe that the EU encouraging and allowing Chinese companies to participate in the EU's adoption of industry standards and technological R&D standards could bring more vitality into the industries. It would benefit both side if the EU, member states, leading companies and business associations could be more open to hear the voice of key Chinese companies in fields such as digital transformation and green development when introducing policies and standards. Communication and exchange of information could be strengthened on standard authentication to make standards clearer and more operable.

8) The CCCEU calls for the establishment of a China-EU young business leaders dialogue mechanism, which will be an innovative platform for communication and mutual understanding. Young people are encouraged to cooperate and be inclusive, and to be ready to take on important roles in the business or public spheres with the overall aim of facilitating China-EU partnerships and promoting peace and development.

Should you have any questions, please contact

Mr. Paolo Recaldini

Communications Officer

paolo.recaldini@ccceu.eu 

Renay Cheng

Head of Marketing, Roland Berger Greater China

Renay.cheng@rolandberger.com