Almost half EU firms in China say 'golden age' is over

[May 29, 2014]  BEIJING (Reuters) - Foreign firms in China face a "sobering" business climate, a European lobby said on Thursday, as concerns over weaker profits and government support for domestic competitors have almost half EU companies saying the "golden age" is over.

EU Chamber of Commerce in China member firms lost out on 21.3 billion euros ($29 billion) in revenue in 2013 due to market access and regulatory barriers, the group said in an report on business conditions in the world's second-largest economy.

"An abiding sense of pessimism for future performance is setting in, which is leading many to question whether the good times have ended," it said.

"...Almost half (46 percent) of European companies believe that the 'golden age' for multinational companies in China has already ended."

At a plenum of the Communist Party last November, China announced ambitious reform plans that signaled the shift of China's economy from infrastructure- and export-fueled growth towards a slower, more balanced and sustained expansion.
 

But growth expectations for companies are at their lowest levels since the peak of the financial crisis, the report said, drawing on responses from 552 firms.

Despite optimism about policy developments that emerged from the plenum intended to reduce the government's intervention in the economy, companies are skeptical about real reform. About half of respondents said they were not confident meaningful reforms would be implemented in the next two years.

Economists say China must make fundamental changes if it is to succeed in its transformation from a bureaucratically run, pollution-spewing industrial powerhouse to a more balanced, market-driven economy.

However, reforms such as freeing up bank interest rates or dismantling state monopolies will cause much short-term pain and provide gains only in the long-term, which may make China's leaders eschew high-risk steps in favor of incremental reform.

China's economic slowdown and rising labor costs were cited as the top challenges.

"Two-thirds of large companies stated that business in China has become more complicated and difficult and that more companies view state-owned enterprises as their main competitors," European Chamber President Joerg Wuttke told reporters at a press briefing.

Foreign corporate executives often gripe bitterly in private about market access and other business challenges in China, but typically let chambers of commerce publicly voice their complaints for fear of government retribution.

Foreign firms have long argued that they face unreasonable discrimination for government procurement in China and that they have been forced into intellectual property concessions in turn for market access in some sectors.

China and the European Union are negotiating a bilateral investment pact, but Europe says it has no interest in the deal if it omits measures to prise open sectors that have long been off limits to foreign investors.

(Reporting by Michael Martina; Editing by Nick Macfie)

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