Scania, other European businesses treated unfairly in China

Mats-Harborn-Scania2

On 7 June the European Union Chamber of Commerce in China (European Chamber) released, in collaboration with Roland Berger Strategy Consultants, their annual Business Confidence Survey with a focus on that Beijing’s failure so far to deliver on promises that foreign-invested enterprises would enjoy a more open, competitive market has fostered mounting pessimism. Its members Companies, which includes Swedish bus and trucks maker Scania, increasingly perceive that China’s reform progress to have stalled.

According to the 2016 survey a significant 41% of European companies are now re-evaluating their China operations and planning to cut costs, including through headcount reduction. Although 47% also report that they plan to expand their operations in China, this represents a thirty-nine-point decrease from 2013, when an overwhelming 86% of European companies were intending to do so. However, a clear majority of European business would likely increase their investment in China in the event of market access barriers being removed.

China’s economic slowdown continues to pose a significant challenge to both Chinese and European companies. However, European business is suffering more acutely from its effects due to an increasingly challenging business environment, coupled with a playing field that is perpetually tilted in favour of domestic enterprises.

More than two years after promises of market reforms and equal treatment were made at the Third Plenum, which European business had welcomed as a potential breakthrough, European companies still perceive that they are treated unfairly. When compared to domestic Chinese companies, 57% of respondents report that FIEs tend to be subjected to unfair treatment. As the Decision was a reform package that the Chinese authorities chose to publicly announce of their own free will, the lack of follow through has been particularly disappointing.

Although pronouncements made in the Decision committing to a market economy, and gradualist reform efforts such as the once-hailed pilot free trade zones initially piqued great interest among European companies, the absence of concrete developments has deepened their disillusionment in China’s reform agenda.

Some of the survey’s other key findings::
• 56% of respondents report that doing business in China has become more difficult, a five-point increase from 2015.
• 58% of respondents state that the recent tightening of Internet controls and access restrictions has a negative impact on their business, a 17-point jump from 2015.
• 55% would likely increase their investment China if afforded greater access.
• 57% of respondents believe that environmental regulations are strongly enforced against foreign companies, while only 14% think that they are strongly enforced against Chinese state-owned enterprises and only 12% think that this is the case with privately-owned Chinese companies.
• 40% of respondents feel that foreign companies are being discriminated against through recently promulgated national-security-related legislation.
• 70% of respondents feel less welcome in China than they did 10 years ago.

Mats Harborn, managing director Scania China. Beijing, China. Photo: Dan Boman 2007

Photo: Dan Boman 2007

Commenting on the report to Wall Street Journal Mats Harborn, Executive Director of Scania Sales China Co., among the companies surveyed, said weak enforcement of vehicle-safety standards in China often favour local players in a position to bend the rules.

“Transportation is a good indicator of how China’s doing as a whole. They’ve made some progress but it’s far from enough,” Mr. Harborn said. “There’s massive overcapacity when it comes to transportation. It’s quite messy. We’d like to see proper enforcement so everyone follows the same rules and competes on service.”

Furthermore, European companies’ willingness to invest in R&D in China has dropped from 85% in 2015, to 72% in 2016, indicating that the Chinese Government’s on-going efforts to attract innovation are not having the desired effect.

A major area of concern for China that only 28% of respondents have a R&D centre in Mainland China, which is indicative of European distrust of China’s vague and arbitrary legal system – effective enforcement of intellectual property rights throughout China’s provinces is highly inconsistent. Nearly half of respondents report that China’s R&D environment is less favourable than the worldwide average.

The successful completion of the EU-China Comprehensive Agreement on Investment is seen to be integral to improving the business environment and reducing market access barriers. European Chamber President Jörg Wuttke said, “European companies now need a roadmap. This will give them with the confidence they need to commit more to China’s future development in these economically challenging times.”

“Despite slowing and L-shaped growth, China’s economy could be powered for another two or three decades of high-quality expansion by measures including further pruning overcapacity, supply side transformation and strengthening innovation,” said Roland Berger CEO Charles-Édouard Bouée. “Addressing these tasks and the challenges highlighted by the Business Confidence Survey will ensure both that all of this growth ultimately takes place and that European business is able to make a major contribution toward attaining it.”

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *