Sentiment declined on doing business in the EU

Chinese businesses have slightly less favorable views in three aspects concerning the ease of doing business in Europe: political environment, macroeconomic & sector-specific environment, and the 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 talents.

The survey finds that if the ease of doing business in the EU improves, 60% of Chinese companies in the EU would invest more and close to 20% intend to do so "significantly."

5G, investment scrutiny, market barriers among top concerns and focuses

Chinese businesses expressed five key concerns in the aftermath of COVID-19 as the pandemic takes a heavy toll on globalization and markets even as the EU tightens measures in a series of fields including 5G and foreign investment. 

Their biggest concern is that COVID-19 has led to sharply reduced demand, supply chain disruptions, rising costs of transport and hindered flow of people. 

They also consider the recent development on the EU's digital transformation and 5G security as their "biggest focus". 

Concerning 5G, the report pointed out, there have been some incidents that rather than solely adopting technology standards concerning security, some member state listed a number of non-EU, including Chinese, suppliers as high risk companies without any evidence.

"Restricting 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," the report said.

Also, some Chinese enterprises face barriers to Europe's "green" market, although seeking greener development has become the common agenda for both Brussels and Beijing. 

"Due to the difference in standards and 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," it noted. 

Furthermore, while implementing an overlapping review system, the EU has put some Chinese enterprises at a disadvantage to a certain degree. 

"Chinese enterprises, especially state-owned, 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," the report added.

"There have been some instances that more qualitative standards than quantitative standards applied in these regulations, which might lead to discretionary power. We hope the EU could continue to take an objective stance, and treat all enterprises equally in accordance with the principle of competitive neutrality," it said.

On the other hand, some Chinese enterprises still find it difficult to fully understand the laws and regulations of the EU, the report noted, adding that the companies also face obstacles like insufficient communication and a lack of high-end talents. Some of them have experienced red tape in granting work permits and mutual recognition of standards.

Eight policy recommendations for EU institutions 

The CCCEU, therefore, has proposed eight recommendations for EU institutions to encourage dialogue and discussions between China and Europe, and help provide more Chinese companies with an opportunity to access the EU market on a more balanced, fair, and reciprocal basis.

"First, we hope the EU could strengthen the political will to raise mutual trust with China and increase alignment in long-term objectives and policy planning," the report said. "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 (starting next year) 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."

Second, the report expressed it could benefit both side if the EU 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," the report said. 

It continued: "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."

Third, it is their sincere hope that the EU could help prevent the spillover and politicization of cybersecurity issues, the report suggested. It called on the EU to initiate a "thorough dialogue" with China and sign agreements on mutual trust.

"Both China and the EU will benefit from open, uniform, and transparent rules of screening and certification for all suppliers." the report said.

Fourth, the report advice the EU should refrain from overregulation and excessive screening, and all forms of trade and investment protectionism. It is in the EU and member states' best interest to reduce unnecessary screening and eliminate overregulation to encourage Chinese enterprises to be a part of the development story across the EU. 

In particular, the report stressed, the cost of FDI (foreign direct investment) into the EU will rise and procedures will be more complicated if 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 news laws and regulations on trade and investment activities. 

Fifth, the report revealed the eager hope of Chinese businesses 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. The report also suggested acceleration on talks for a China-EU FTA in the pipeline. 

Sixth, economic and trade agreements between the two sides could be implemented creatively by strengthening cooperation between the public and the private sectors. 

"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 sectors," said the report.

Seventh, the report suggests Brussels to encourage and allow Chinese companies to participate in the EU's adoption of industry standards and technological R&D standards. It could bring more vitality into the industries, 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, the report noted.

Finally, the CCCEU called for the establishment of a China-EU young business leaders dialogue mechanism.

The recommendation report, about 60 pages, is the second annual report since the CCCEU's inauguration in April 2019 in Brussels.